As China grapples with economic challenges, including a sluggish recovery from the Covid-19 pandemic and a persistent real estate slump, calls for additional stimulus are intensifying from both domestic and international observers.
The world’s second-largest economy has faced pressure from weak consumer confidence and slower growth in manufacturing, although exports have provided some support.
Goldman Sachs recently lowered its annual growth forecast for China to 4.7%, down from 4.9%, citing disappointing economic data and a delayed impact from fiscal policies. Analysts highlighted an increasing risk that China may not meet its full-year GDP growth target of around 5%.
The Third Plenary meeting of top leaders in July reiterated existing policies without introducing substantial new measures. In response to the economic climate, Beijing has announced targeted initiatives aimed at boosting consumption, such as subsidies for upgrading large equipment. However, many businesses report that these measures have yet to make a significant impact, with retail sales growing only 2.1% in August—one of the slowest rates since the pandemic.
The real estate sector, which once accounted for a significant portion of China’s economy, continues to struggle. Investment in this sector has fallen over 10% in the first eight months of the year. Xu Gao, chief economist at Bank of China International, noted that while consumer demand exists, potential buyers are hesitant due to concerns over unfinished properties. Estimates suggest that around 20 million pre-sold housing units remain incomplete.
Policymakers have implemented various measures to support the real estate market, but experts, including Xu, argue that these efforts are insufficient and call for substantial financial backing to stabilize the sector.
China’s leadership has increasingly focused on advancing manufacturing and technology capabilities, particularly in light of US restrictions on high-tech industries. Although there are indications of a desire to escalate policy stimulus, analysts suggest that the approach remains cautious.
Former People’s Bank of China governor Yi Gang has emphasized the need to address deflationary pressures through proactive fiscal and monetary policies. Yet, local government constraints and tight fiscal conditions have limited the effectiveness of stimulus efforts.
The latest economic data show slower-than-expected growth in retail sales, industrial production, and fixed asset investment. Nomura’s Chief China Economist, Ting Lu, noted that conventional monetary policies may be reaching their limits, suggesting that fiscal measures should take precedence.
Despite a reported 5% GDP growth in the first half of the year, economists predict that China’s economy may expand by only 4.8% in real terms for the year, which would be at the lower end of the government’s target range. Analysts are increasingly advocating for a more aggressive approach to stimulus, particularly focused on the housing crisis, which they view as a root cause of broader economic issues.
In conclusion, while China’s economy has shown some resilience, the growing consensus among analysts is that more decisive stimulus measures are necessary to ensure a sustainable recovery and to address the challenges posed by the ongoing real estate slump.
CNBC, Bloomberg, and East Asia Forum contributed to this report.
