Celebrating the Golden Week vacation and marking the 75th anniversary of the People’s Republic, the governing Communist Party presented an ambitious set of economic policies meant to solve China’s struggling economy. Though the stock markets responded with hope, experts still need to be convinced whether these actions will be sufficient to address more fundamental problems afflicting the world’s second-largest economy.
What Are the Bold Steps to Revive China's Struggling Economy?
On September 24, the People’s Bank of China (PBOC) unveiled a stimulus package to help stabilize the nation’s battered financial markets. Among the main initiatives was an 800 billion yuan ($114 billion; £85.6 billion) fund accessible to asset managers, brokers, and insurance companies to buy shares to strengthen the stock market.
Pan Gongsheng, the governor of PBOC, also underlined the central bank’s dedication to helping listed businesses want to buy back their shares, therefore lowering the supply of accessible stocks and ideally raising share prices. Pan also declared intentions to cut borrowing rates and inspire banks to increase lending.
Pan said during the announcement, “The People’s Bank of China will act forcefully to shore up the economy and restore investor confidence.”
How Did the Markets Respond to China's New Economic Policies?
China’s financial markets rallied sharply following these declarations. The Shanghai Composite Index surged more than 8%, its highest single-day performance since the worldwide economic crisis in 2008, on Monday before the weeklong Golden Week holiday. The surge ended a five-day climb in which the index rose by twenty. The Hang Seng Index in Hong Kong surged more than 6% the next day when mainland markets closed for the vacation.
One eminent China expert noted, “Investors loved the announcements.” “Exactly what they hoped for—short-term stimulus to raise confidence.”
Why Did Xi Jinping Convene a Surprise Politburo Session Amid Economic Slowdown?
Two days following the PBOC’s declaration, President Xi Jinping led a surprise Politburo meeting emphasizing pressing economic problems. At the high-level conference, China’s senior officials promised to boost government expenditure to help the economy. However, particular information on the magnitude and extent of the fiscal stimulus should have been disclosed.
“Officials promised to boost government expenditure targeted at supporting the economy,” one spokesman stated. “We are dedicated to stabilizing important industry sectors.”
Even with the market’s initial reaction, there are mounting worries that China would fall short of its annual growth target of five percent. This would seriously erode faith in the government’s capacity to oversee economic recovery. “Missing growth targets is not an option for China’s leadership,” said one political economy researcher. “In China, targets have to be reached by any means required. The leadership fears that neglecting to satisfy them in 2024 will aggravate the slow down of poor confidence and slow development already underway.”
Can New Measures Revive China's Troubled Real Estate Market?
The latest policy initiatives were also meant to address one of the main drags on China’s economy—its troubled real estate market. Beginning three years ago, the property crisis has severely affected the larger economy since millions of Chinese homeowners have seen their property values collapse.
The stimulus package calls for cutbacks in minimum down payments for second-home purchasers, mortgage rate cuts, and measures to boost bank credit for the housing industry to help address the real estate crisis. Even with these initiatives, many analysts wonder if the government’s actions will sufficiently revive the property market.
“Those policies are welcome but unlikely to change the needle much in isolation,” said one economist. “China’s weakness stems from a crisis of confidence, not one of credit; firms and families don’t want to borrow, regardless of how cheap it is.”
Are Skepticism and Structural Challenges Hindering China's Economic Recovery?
Beyond quick interest rate reduction and mortgage easing, China’s leadership recognized the need for more fiscal stimulus; nonetheless, experts argue that the absence of details has left markets in doubt. Officials have promised to prioritize top priorities, including stabilizing the property market, increasing jobs, and promoting consumption. Still, the ambiguity of the specifics worried some.
One analyst cautioned that investors would be let down should the fiscal boost fall short of market expectations. “Also, cyclical policy stimulus does not address structural issues.”
These structural problems are most hampering China’s long-term economic future. Notably, the nation’s real estate market has long been a pillar of the economy, so stabilizing more general consumer confidence depends on confidence in the housing industry.
“Property is the biggest investment most Chinese families will make, and declining house prices have hit consumer confidence hard,” said one analyst. “Keys would be ensuring the delivery of pre-sold but unfinished homes.”
Can Xi Jinping's Vision for a "High-Quality Economy" Succeed?
China’s leadership stays focused on guiding the nation toward what President Xi Jinping calls “high-quality development” amid these difficulties. Emphasizing innovation and high-end sectors above the conventional growth drivers of property and infrastructure investment, which have driven the Chinese economy for decades, this new economic plan stresses “While the road ahead remains challenging,” an editorial in the state-run People’s Daily said, “the future is promising.”
However, moving from the old economy to the new has some hazards.
“The challenge China faces is that the old and the new economies are profoundly linked,” said one analyst. “Should the old economy collapse too rapidly, it will indeed impede the emergence of the new. This is the realization of the leadership and the response it is reacting with.
What Lies Ahead for China's Economic Future?
China sits at a crossroads economically as it approaches its 75th anniversary. Although temporary steps to increase stocks and stabilize the housing market are appreciated, most agree that more thorough structural changes are required to guarantee long-term wealth. The Communist Party is especially aware of this reality since it aims to make sure China does not suffer the same destiny as the Soviet Union, which fell 74 years after its creation.
“Avoiding the fate of the Soviet Union has long been a key concern for China’s leaders,” observed one political specialist.
With the world’s emphasis on China’s economic path, only time will tell whether the latest policies will be sufficient to rebuild trust and steady growth. The nation’s government is still dedicated to its audacious plans of reform and renewal.
“The road ahead is challenging but with President Xi’s vision of high-quality development and new productive forces, the future is bright,” the People’s Daily editorial said.
