China is planning a significant increase in government spending to help low-income households, support the real estate market, and strengthen state banks, according to Finance Minister Lan Foan. Speaking at a press conference, Lan announced that the government will introduce more “counter-cyclical measures” this year as part of efforts to stimulate the economy.
Economic Challenges and Deflation
China’s economy, the second-largest in the world, is currently facing strong deflationary pressures due to a slump in the property market and weakened consumer confidence. These factors, combined with the country’s dependence on exports, have been worsened by global trade tensions. Economic data from recent months has consistently fallen short of expectations, causing concerns that the government’s target of 5% growth for 2024 may not be met.
Despite these challenges, Zheng Shanjie, chairman of the National Development and Reform Commission (NDRC), expressed confidence that the target would still be achieved. Data for September, set to be released soon, will provide further insights into the state of the economy.
Fiscal Stimulus and Market Reactions
After a meeting of the Politburo in September, speculation about China’s fiscal stimulus grew. The government is expected to issue special sovereign bonds worth around 2 trillion yuan (about $284 billion) this year. These funds will help local governments manage debt and provide subsidies for household purchases, such as home appliances, along with a monthly allowance of 800 yuan ($114) for families with two or more children.
In addition, China may inject up to 1 trillion yuan ($142 billion) into its largest state banks to help them issue more loans and support economic recovery.
Addressing Structural Issues
Although the central bank has already introduced monetary support measures, including mortgage rate cuts, analysts believe that China must address deeper structural issues, such as boosting domestic consumption and reducing its reliance on debt-funded infrastructure projects. The country’s local governments are already burdened with approximately $13 trillion in debt.
Lan added that the government will help local governments manage their debt and that they still have 2.3 trillion yuan ($325 billion) to spend in the last quarter of this year. Some local governments may also repurchase unused land from property developers to aid recovery.
Household Spending and Wage Issues
China’s household spending is significantly lower than the global average, accounting for less than 40% of annual economic output. Low wages, high youth unemployment, and a weak social safety net contribute to this trend. A recent report from Zhaopin, a recruiting platform, revealed that the average salary in China’s major cities fell by 2.5% in the third quarter of 2024.
Businesses like Swedish furniture retailer Ikea, which has 39 stores in China, have felt the effects of the property crisis and are urging the government to introduce further stimulus measures to support economic growth.
