China has unveiled one of its boldest stimulus packages in years, a move aimed at tackling the country’s growing economic challenges, including a prolonged property sector debt crisis, deflationary pressures, and soaring youth unemployment. This latest effort comes after a year of stagnant growth, with Beijing facing mounting pressure to revive the world’s second-largest economy. Analysts, however, have raised questions about the timing of the package, noting that China may have deliberately held off on such measures until the U.S. Federal Reserve cut its rates, potentially signaling a calculated strategy in the context of global financial competition.
A Bold Attempt to Spark Growth
The stimulus package, announced on September 24, introduces a variety of measures designed to inject liquidity into the financial system and stimulate both consumption and investment. Pan Gongsheng, the governor of the People’s Bank of China (PBOC), emphasized that the government would cut several key interest rates and lower the reserve requirement ratio (RRR), a move expected to release approximately one trillion yuan (US$141.7 billion) into the financial market. The RRR cut marks a substantial injection of long-term liquidity for Chinese banks, enabling them to lend more freely and at lower interest rates.
Additionally, Beijing has pledged to lower interest rates on existing mortgage loans, a decision that will benefit an estimated 150 million citizens, reducing household interest burdens by about 150 billion yuan annually. Pan also unveiled a new “swap programme” to improve corporate liquidity, allowing firms to acquire funds more easily for stock purchases. The initial scale of the program is set at 500 billion yuan, with the potential for future expansion.
Is It Too Late?
While the stimulus measures mark a significant intervention, many experts remain skeptical about their ability to fully rejuvenate China’s ailing economy. Julian Evans-Pritchard, Head of China Economics at Capital Economics, characterized the package as “the most significant since the early days of the pandemic,” but cautioned that more substantial fiscal support would be necessary for a full recovery. Despite the government’s 2024 growth target of 5%, analysts argue that achieving this goal will be an uphill battle given the economic headwinds China is currently facing, including its ongoing property sector crisis and weakened global demand.
A Deliberate Wait-and-See Approach?
Interestingly, China could have introduced this stimulus package at any time over the past year, as economic challenges have been building for months. Yet, some analysts believe that Beijing deliberately held off on rolling out these measures until after the U.S. Federal Reserve began cutting rates, signaling a more competitive stance on the global economic stage. The Fed recently initiated a 50 basis point rate cut, marking the start of its easing cycle. By timing its stimulus with the Fed’s actions, China may be positioning itself to benefit from a favorable global financial environment, leveraging the synchronized loosening of monetary policy in the U.S. to enhance its own economic competitiveness.
This strategy could also reflect China’s concerns about maintaining the stability of its currency, the yuan, relative to the U.S. dollar. After the stimulus announcement, the yuan surged to a 16-month high against the dollar, reflecting investor optimism about China’s ability to boost growth. In the global market, this has also led to a rise in commodity prices, with copper and oil seeing notable gains.
Global Impact: U.S. Markets React
The ripple effects of China’s stimulus have extended far beyond its borders. In the U.S., the Dow Jones Industrial Average and the S&P 500 both posted gains, while the stocks of U.S.-listed Chinese firms like Alibaba and Li Auto surged. Additionally, mining and metals stocks, which are closely linked to Chinese demand, experienced significant jumps. Freeport-McMoRan rose by 7.9%, Southern Copper by 7.2%, and lithium giant Albemarle by 1.97%.
Zachary Hill, head of portfolio management at Horizon Investments, noted that China’s stimulus is “feeding through into parts of the U.S. market,” particularly in sectors like metals, mining, and cyclical industries that are highly sensitive to Chinese demand.
China’s Structural Challenges
Despite the immediate optimism generated by the stimulus, China’s economic woes are far from resolved. The country’s real estate sector, which has been a critical driver of growth for decades, remains mired in debt, with many developers unable to complete projects or meet financial obligations. Moreover, youth unemployment in China has reached alarming levels, with millions of young graduates struggling to find jobs in a slowing economy.
Compounding these issues is China’s deflationary spiral, where declining prices threaten to further reduce consumer and business spending, exacerbating the economic slowdown. These structural challenges, combined with a shrinking population, are likely to continue putting pressure on China’s economic outlook in the coming years.
What’s Next?
While China’s newly unveiled stimulus package may provide some short-term relief, the road to sustained recovery remains uncertain. More aggressive fiscal policies and deeper structural reforms may be required to stabilize the property sector, boost employment, and foster long-term growth. For now, investors are watching closely to see how these measures will play out and whether they will be enough to kickstart the broader recovery China desperately needs.
At the same time, China’s timing—potentially in response to the U.S. Federal Reserve’s rate cuts—shows that the global economic competition between the two superpowers continues to shape policy decisions. As the world navigates the post-pandemic economic landscape, China’s ability to manage its internal challenges while keeping pace with global shifts will be crucial in determining its role in the future global economy.
Miyuki
Anais
Weiliang
Kikyo
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