- China’s economy is experiencing a significant downturn despite the government’s efforts to counteract it with extensive stimulus measures.
- Rising national debt and a persistent real estate crisis are central obstacles threatening economic stability.
China‘s economic situation continues to deteriorate, despite the stimulus measures initiated by the Xi Jinping government. These drastic actions appear insufficient to reverse the downward trend. The Chinese government may need to inject billions of additional yuan to combat the ongoing crisis.
Meanwhile, the National People’s Congress is developing a comprehensive stimulus plan that is set to be presented ahead of the upcoming U.S. presidential elections. This plan could provide critical benefits for the Chinese economy.
The Challenge of Economic Recovery
China’s economic challenges are multifaceted, extending beyond the acute issues in the real estate sector. Despite various measures, such as interest rate cuts and the relaxation of real estate purchase regulations, market sentiment remains tense. A primary goal of the current “Standing Committee of the National People’s Congress” is to draft a large-scale economic assistance plan aimed at stabilizing and promoting the country’s growth. Analysts are placing significant hopes on this plan, particularly regarding massive investments that will benefit heavily indebted local authorities and banks.
The three core priorities for this economic recovery are clearly defined:
- Strengthening financial support for heavily indebted municipalities.
- Allocating 1 trillion yuan in aid to banks to stabilize the financial sector.
- Promoting consumption by restoring households’ confidence in the economy.
Despite these strategies, numerous challenges persist. The real estate market is stagnating, households are inclined to save money, and national debt continues to rise alarmingly. Therefore, additional budgetary measures from the government are expected to stimulate the economy. However, uncertainty regarding the actual effectiveness of these measures remains high.
The real estate crisis represents another significant factor threatening China‘s economic stability. Since the tightening of lending practices in 2020, the number of construction sites in China has surged, with many projects remaining incomplete. These delays have led to a significant depreciation of property values, discouraging many households from investing in the real estate market. Despite recent government actions, such as increasing loans for completing unfinished projects, consumer confidence in the real estate sector remains fragile.
Another worrying development is the record high of national debt, which reached an astonishing 366% of GDP in the first quarter of 2024, further constraining the government’s financial options.
In addition to these internal challenges, U.S. politics could significantly influence Beijing’s economic strategies. A potential victory by Donald Trump in the upcoming elections could lead to increased tariffs on Chinese exports, further burdening China’s economic situation. In this context, economists believe that China may be compelled to enhance its stimulus measures to shield itself from external shocks. Economist Ting Lu forecasts that aid could be increased by 10 to 20% in the event of a Trump victory.
It is crucial to emphasize that China‘s political decisions can have far-reaching effects on the global economy and that its current measures are pivotal in determining the global economic balance.