China’s Economic Woes Deepen: Stimulus Measures Fall Short as Growth Slows

(Analysis) China’s economy faces mounting challenges despite recent stimulus efforts. The government has deployed various measures to boost growth, but results remain disappointing.

Economic indicators paint a grim picture of the world’s second-largest economy, suggesting the situation may be more dire than previously thought.

In September 2024, China’s central bank announced a 24-point plan to address unemployment and stimulate growth.

The plan included job creation initiatives and improvements in income distribution. State-owned enterprises were tasked with absorbing more workers to fulfill social responsibilities.

The government pledged support for businesses generating employment opportunities and aimed to promote reasonable salary increases to address income inequality concerns.

Despite these efforts, industrial profits have faltered significantly. For the first eight months of 2024, industrial profits grew by a mere 0.5% year-on-year, reaching 4.65 trillion yuan ($663 billion).

August saw profits plummet by 17.8% compared to the previous year. This sharp decline underscores the urgent need for policy intervention.

Real Estate Struggles and Economic Stimulus

The real estate sector continues to struggle, prompting new policy measures. Homeowners can now refinance mortgages at lower rates, potentially benefiting 50 million households.

This could lead to annual interest savings of approximately 150 billion yuan ($20.5 billion). However, housing sales by floor area dropped 19.1% year-on-year in August 2024.

New home prices in 70 major cities have declined for four consecutive months. Property investment fell 18.5% in the first eight months of 2024 compared to the previous year.

The People’s Bank of China has taken drastic steps to stimulate the economy. It cut the reserve requirement ratio for banks by 0.5 percentage points, injecting one trillion yuan ($140 billion) into the financial market.

The bank also lowered interest rates on existing mortgages to support the struggling property sector. Additionally, China plans to issue 2 trillion yuan ($284 billion) in sovereign debt as fiscal stimulus.

Part of this stimulus will provide child allowances to boost domestic consumption. Despite these efforts, many economists argue that more substantial fiscal support is needed.

The World Bank projects China’s growth to decrease from 4.8% in 2024 to 4.3% in 2025, falling short of the 5% target set by Chinese authorities for 2024.

This slowdown has far-reaching implications, affecting demand for commodities, global supply chains, and investment patterns worldwide.

China’s Economic Challenges and Policy Shifts

Unemployment remains a pressing concern, particularly among young people. The jobless rate for the 16-24 age group, excluding students, rose to 18.8% in August. This increase followed a record 11.79 million college graduates entering the job market.

The government’s 24-point plan aims to address this issue through education reforms and expanded enrollment in science, technology, agriculture, and medicine programs.

China’s stock market has experienced significant volatility. On October 9, 2024, the benchmark CSI 300 index plummeted 7.05%, marking its steepest single-day decline since February 2020.

This sharp downturn abruptly ended a two-week rally fueled by government stimulus hopes. In response, the central bank launched a 500 billion yuan ($71.2 billion) swap line to revive Chinese stocks.

This facility aims to inject liquidity into capital markets and restore investor confidence. However, critics argue these measures may provide only a short-term boost.

Chinese leaders have finally admitted that the economy faces “difficulties.” At a meeting presided over by President Xi Jinping on September 26, the Chinese Communist Party’s Politburo acknowledged new problems in the current economic situation.

This admission contradicts previous upbeat assessments and signals a potential shift in economic policy approach. As China navigates these economic headwinds, the world watches closely.

The success or failure of its policy measures could shape the global economic landscape in the years to come. The coming months will prove crucial for China’s economic future and its impact on the world stage.