Economists warn more action to revive household spending in China

The struggles of Beijing homeowners amidst the ongoing collapse of the Chinese property market have been brought to light in a recent article by Financial Times.

Owning a home in Beijing should have been a lucrative investment for Zhang, a 32-year-old consultant. However, the prolonged downturn in the Chinese property market means he is “definitely losing money.” When asked if this week’s significant stimulus measures would restore his confidence in the Chinese economy, he replied: “Absolutely not.”

The stimulus package—Beijing’s largest since the pandemic—includes substantial funding from the central bank to bolster the stock market, cuts to policy rates, measures to enhance bank liquidity, and efforts to address the ongoing property crisis, such as a 50-basis point interest rate reduction for mortgage holders like Zhang. 

This announcement was followed by a strong statement from China’s politburo, which analysts described as an “emergency” meeting focused on the economy, where they pledged to increase fiscal spending to support growth. These developments energized the markets, putting Chinese stocks on track for their best week since 2008.

“We were surprised by the speed of the policy shift,” remarked Robin Xing, Morgan Stanley’s chief Asia economist, who believes this marks the beginning of a series of policies aimed at rejuvenating the economy. Yet, the situation for individuals like Zhang highlights the challenges Beijing faces in trying to restore consumer confidence in the world’s second-largest economy. 

The three-year housing slump, sparked by a crackdown on real estate leverage alongside similar actions in sectors like e-commerce, online education, and finance, has dampened household confidence. Coupled with industrial oversupply and rising debt levels, analysts caution that China risks falling into a deflationary spiral. Despite robust export performance, which is sustaining GDP growth, industrial profits for large companies plummeted nearly 18 percent year-on-year in August. 

This decline was attributed in part to “insufficient effective market demand,” according to the National Bureau of Statistics. In the domestic economy, signs of a lack of confidence are pervasive. Retail sales have increased by less than 1 per cent since the beginning of the year, as per seasonally adjusted figures from research group Gavekal, while consumer prices are nearing deflation. Youth unemployment has risen, and both tax revenue and expenditure decreased in August. The monetary policy package, announced by central bank governor Pan Gongsheng on Tuesday alongside financial sector regulators, included robust support for the stock market. This encompassed swaps designed to assist brokers, funds, and insurance companies in boosting their stock market holdings, as well as funds allocated for companies to execute share buybacks. 

The central bank also reduced the benchmark short-term interest rate by 20 basis points and lowered the reserve requirements for banks, freeing up approximately Rmb1 trillion ($143 billion) for lending. This easing of monetary policy sent global markets upward and pleased trading partners. Australian Treasurer Jim Chalmers, during his visit to Beijing on Friday, expressed satisfaction with these additional measures. He highlighted that Australia, China’s largest trading partner, was facing its weakest growth in three decades. Shares in Australian iron ore miner Fortescue rose by 5 per cent, while BHP and Rio Tinto increased by 3 per cent on the same day. 

By Naila Huseynova