China’s stimulus measures to boost the economy have fallen short of expectations.
China's stimulus measures to boost the economy have fallen short of expectations.
China releases measures to boost household consumption and stimulate economy
China has unveiled a series of plans aimed at boosting household consumption in order to revive its flagging economy. However, analysts are skeptical that these measures will be enough to provide the necessary stimulus.
The plans released by China on Monday target the automobile, real estate, and services sectors. The goal is to harness the “fundamental role of consumption in economic development” as stated in an official statement from the country’s top planning agency. The specific details of the measures are not yet available.
The proposed measures include improving electric vehicle infrastructure, expanding the supply of affordable rental housing, and reducing admission fees at attractions. While these measures are aimed at increasing demand, analysts believe that the lack of direct support for households could dampen consumer spending.
Wenyu Yao, an analyst from Citi, expressed disappointment with the stimulus measures, stating that they did not meet expectations. Another analyst, Bruce Pang from Jones Lang LaSalle, highlighted the challenge of stimulating demand through policies when residents are hesitant to spend and the government is reluctant to provide subsidies to boost consumption.
China’s top leaders, in a recent meeting, pledged to boost stimulus measures in light of the challenges facing the economy. The recovery process was described as “tortuous” in the official readout. Interestingly, one notable omission from the readout was the phrase “Houses are for living in, not for speculation,” which had been a fixture since 2016 when the government sought to cool the property market. This omission has fueled hopes that there may be an easing of property market curbs in the future.
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Despite the recent measures announced by Beijing, analysts caution against excessive optimism. Nomura ANBLEs noted that while the moves should be encouraged, the roadmap and impact of these easing measures remain unclear. This skepticism hasn’t stopped investors from being hopeful, as evidenced by the 6% increase in Hong Kong’s Hang Seng Index and the 3% gain in the Shanghai Composite in July.
China’s cautious approach to boosting the economy comes at a time when economic indicators have been disappointing. The Purchasing Managers Index (PMI) for manufacturing activity fell below 50 for the fourth consecutive month, indicating contraction rather than expansion.
It is worth noting that China is even reversing some major policies implemented during the COVID-19 pandemic in an effort to revive the economy. This includes a crackdown on the country’s tech sector in 2020, which resulted in a significant decline in the market value of its Big Tech firms.
In response to the announcement, the Shanghai Composite closed 0.5% higher, while Hong Kong’s Hang Seng Index closed 0.7% higher. The Hang Seng China Enterprises Index, which tracks tech stocks listed in Hong Kong, closed 1.1% higher.
Overall, while China’s measures to boost household consumption are a step in the right direction, it remains to be seen whether they will be sufficient to revitalize the economy. Analysts continue to caution against excessive optimism and emphasize the need for clarity and scale regarding the impact of these measures.
