China's economic aspirations undermined by weak data and consumer confidence

China's ambitious economic plans have taken centre stage as the government allocates 200 billion yuan ($28 billion) for local investment projects this year, CNN highlights.

Zheng Shanjie, chairman of the National Development and Reform Commission (NDRC), expressed confidence in meeting the country's annual economic and social development goals, emphasizing the aim of maintaining steady and healthy growth. Despite a declared target growth rate of 5 per cent in March, recent economic data has raised concerns, prompting fears that this goal may not be reached.

The second-largest economy is grappling with significant challenges, including a property crisis, weak consumer spending, and high youth unemployment. To assist local governments burdened by substantial debt, Beijing will allocate 100 billion yuan ($14 billion) from the central budget, along with an additional 100 billion yuan for investment initiatives.

Economists had been anticipating further fiscal measures amounting to approximately 2 trillion yuan ($285 billion) to be unveiled this month, especially after President Xi Jinping approved a crucial growth plan in late September. Fred Neumann, HSBC's chief Asia economist, noted that while the NDRC reiterated a commitment to a pro-growth approach, the lack of detailed fiscal measures disappointed investors. 

He emphasized that urgent fiscal easing is necessary to promote sustainable growth, which is expected to be addressed later this month. Recent measures have primarily focused on monetary policy, which impacts borrowing costs and inflation, while fiscal measures more directly affect public spending through taxation and other methods. The absence of a major stimulus announcement dampened the stock market enthusiasm in Hong Kong and mainland China. 

Blue-chip stocks in Shanghai and Shenzhen, which had initially surged over 9 per cent at market opening, ultimately closed 6 per cent higher. Meanwhile, Hong Kong’s Hang Seng Index, which recently enjoyed its best two-week performance since 2005, fell by more than 5 per cent. Many economists assert that greater measures are necessary to rebuild consumer confidence and encourage spending. 

Jia Kang, a former director of a think tank linked to the Ministry of Finance, suggested in an interview with The Paper, a state-owned newspaper, that Beijing should issue up to 10 trillion yuan ($1.4 trillion) in long-term government bonds to finance infrastructure and public works. He deemed this amount "not unreasonable," citing past stimulus efforts by the government.

Economists at Citi echoed this sentiment in a research note, stating that a stimulus exceeding 10 trillion yuan or 10 per cent of GDP might be essential for revitalizing the economy, given China's historical context of stimulus measures. On September 24, the People’s Bank of China announced a reduction in one of its key interest rates and lowered the reserve requirements for banks. 

By Naila Huseynova