Doldrums continue to plague China’s post-pandemic economy. Now the country’s leaders are firing up a new round of plans to jump-start growth. It just might not be enough.
Amid concerns of a “prolonged structural slowdown,” China’s central bank this week unveiled the “biggest stimulus” of the post-Covid era, Reuters said. The “broader-than-expected” package includes mortgage interest rate cuts and other measures designed to pull the country’s economy out of a “deflationary funk.” That’s the good news. The not-so-good news? “The move probably comes a bit too late, but it is better late than never,” said Natixis’ Gary Ng to Reuters.
It’s a “massive adrenaline shot” for an economy beset by a “property market blowout, consumer price weakness and rising global trade tensions,” said Bloomberg. But the “sweeping” effort doesn’t meet demands to “fundamentally reconfigure” the economy away from manufacturing exports and toward domestic consumption. The missing piece? “A coherent strategy to get China’s 1.4 billion people to ramp up spending,” Bloomberg said.
‘Likely to disappoint’
“Chinese households and businesses are getting another credit stimulus that’s likely to disappoint,” said The Wall Street Journal in an editorial. The new stimulus is the “most aggressive” attempt to pull China’s economy out of a slowdown. But it won’t create the “investment opportunities” that the economy needs to truly grow. “Only greater freedom for private innovators and entrepreneurs can do that,” said the Journal. Beijing isn’t ready to go that route, which means “China’s domestic economy will continue to underperform.”
The stimulus is “hefty but insufficient,” said The Financial Times. The “poorest households” need a boost that includes “social security and healthcare support” and investors need “policy stability and deregulation.” But those measures would require Beijing to “spend big” and overcome its “desire to control the private sector.” A “more focused policy” response is needed, but the stimulus could be a good first step. “It is a sign that Chinese officials are waking up to the urgent need to re-energize its economy,” FT said.
Fears of ‘social instability’
China’s central bank announcement came as the youth unemployment rate “reached record highs,” said The Los Angeles Times. In August, the unemployment rate for 16- to 24-year-olds hit 18.8% — “notably worse” than other Asia-Pacific countries. That has led to concerns among Chinese leaders that “social instability” rising from mass youth unemployment could become a “political liability,” said the Times. The new stimulus is an effort to keep that instability at bay.
Despite its problems, China still has the world’s second-largest economy: Continued efforts to goose growth could have “global ripple effects,” Jared Blikre said at Yahoo Finance. The stimulus focused mostly on policy changes. The next step? Beijing could start “throwing more government money at the problem.” That could set off a chain reaction of “major shifts in supply chains and pricing for raw materials” that would create “headaches” for U.S. manufacturing firms. That means, as one economist said, the world could be “looking at more inflation volatility over the next decade.”