New Economic Stimulus Measures in China: More Questions than Answers

China has reaffirmed its intention to enhance economic support, particularly for the faltering real estate sector and indebted local governments. However, Finance Minister Lan Fo'an disappointed investor expectations when he was unable to provide specific figures for the planned fiscal stimulus package. The announcements conveyed little urgency in decisively boosting consumption, a critical factor in combating deflation and stimulating growth. Despite the planned issuance of special bonds to support locally indebted authorities and convert unsold properties into social housing, experts do not expect an immediate growth boost. According to Jacqueline Rong of BNP Paribas, it is still too early to speak of an imminent end to deflationary pressure. This is underscored by persistently low consumer prices and increasing deflation in producer prices. Analysts had anticipated a comprehensive aid package that could amount to as much as 2 trillion yuan, including subsidies and consumption vouchers. However, Lan hinted that more extensive measures might be decided in the coming weeks when the National People's Congress convenes. Another step could include the issuance of government bonds. Local governments could benefit from restructuring their debts by taking advantage of favorable loans, thereby making room for necessary expenditures. These measures could relieve government budgets in the long run, but the success of these steps remains to be seen. Beijing's view of not granting large direct subsidies remains unchanged. Local authorities are now attempting to stabilize their budgets through increased tax revenues and other penalizing measures, which could, however, undermine confidence in the private economy. The focus of Chinese economic policy continues to shift from export-oriented growth towards more domestic consumption. This shift is urgently needed to minimize future risks and contribute to more sustainable development. The pressure on the central government to resolve its structural problems is growing, particularly concerning the long-term prospects of the real estate and manufacturing markets.