Xi’s big stimulus blitz aims to draw a line under China slowdown

BEIJING – For months, President Xi Jinping appeared unfazed by slowing growth as stocks sank, prices fell and discontent grew around China. The past week has shown he is not willing to tolerate any more pain.

The

People’s Bank of China began the charge to revive sentiment

on Sept 24 in a rare televised press briefing beamed live around the world, opening its war chest to stock markets and making money cheaper to borrow.

The next day, it kept the positive news flowing by lowering the interest rate on its one-year loans to lenders by the most on record, while the government issued rare cash handouts and floated new subsidies for some jobless graduates.

The 24-man Politburo led by Mr Xi

followed that on Sept 26 with more pro-growth goodies, vowing to boost fiscal spending and making its first pledge to stop property prices from “declining”. It also unveiled a new focus on boosting consumption, saying this was “necessary to respond to the concerns of the masses”.

The efforts extended to Sept 27 when the head of the National Development and Reform Commission pledged “full support” to private Chinese firms to help them overcome difficulties, saying such companies and entrepreneurs are “one of our own”.

The top leader’s policy pivot gave the nation’s troubled benchmark CSI 300 Index its biggest weekly gain in more than 15 years. American billionaire David Tepper declared he was buying more of “everything” China after the sweeping stimulus.

The barrage of stimulus measures marked a sea change in Mr Xi’s approach to managing the world’s second-largest economy – also Singapore’s single largest export market – after proudly resisting big stimulus for so long. The Chinese leader has in recent years put national security and reducing financial risks firmly in the front seat, displaying a willingness to sacrifice some growth to make the economy more independent of an increasingly hostile United States.

Mr Neil Thomas, fellow on Chinese politics at the Asia Society Policy Institute’s Centre for China Analysis, said the week’s slew of stimulus measures “showed it’s incorrect to say that Xi does not care about the economy or is purely ideological about his political goals”. “He needs a baseline level of growth to maintain social stability, build international power and achieve national rejuvenation.”

The timing of Mr Xi’s adrenaline shot was telling. 

The US Federal Reserve had just slashed rates, easing pressure on China’s renminbi. Meanwhile, Wall Street banks were cutting growth forecasts to below Beijing’s around 5 per cent annual target, and China’s upcoming national holiday gave disgruntled families a chance to share the gloom over reunion dinners. 

A growing chorus of prominent Chinese economists – including former central bank chief Yi Gang – issued veiled warnings in recent weeks that a shift to shore up demand was needed to stop China from drifting into a deflationary spiral. Companies mired in fierce price wars are laying off workers, while college graduates are struggling to find work, sending August’s youth unemployment rate to a record in 2024.

“It’s clear China’s top policymakers are spooked,” said Mr Adam Wolfe, an emerging market economist at Absolute Strategy Research. “My best guess is they’ve been seeing signs the labour market is softening, and that has prompted them into action.”

But while the multi-pronged policy package marked a shift for Mr Xi and had equity markets excited, it did little to address deep-seated problems plaguing the longer-term outlook. 

Investors waited with optimism for a housing rescue programme unveiled in May. But it proved anti-climactic and market euphoria quickly faded as progress has been slow due to the unattractive economics for city governments.

“To really get the demand side going, policymakers need to turn the housing market around,” said Mr Louis Kuijs, chief Asia-Pacific economist at S&P Global Ratings. “On the consumption front, they should combine substantial short-term stimulus with structural measures to make people feel more comfortable economically.”

This would likely require major fiscal firepower – something that could propel Mr Xi into “bazooka” territory, if unleashed. While the Politburo offered no specifics on expanded government spending, Reuters reported that the Ministry of Finance was planning to issue US$284 billion (S$363.6 billion) worth of special sovereign bonds in 2024, with half devoted to boosting consumption.

The Politburo meeting also called on local officials to “have the courage to take responsibility and dare to innovate”. Such apparatchiks have been paralysed by Mr Xi’s command to reduce debts, after years of rampant borrowing to fund growth-boosting infrastructure projects, while an anti-corruption campaign has sent a chill through the bureaucracy.

Although the policy blitz was encouraging, Mr Xi vowed as recently as July to make “high-quality development” the economic priority, using a slogan that is shorthand for relying on advanced manufacturing to generate growth.

At best, the leadership was now acknowledging that the property crash and its impact on consumption cannot be ignored, said Professor Yuen Yuen Ang, who teaches Chinese political economy at Johns Hopkins University.

“They realise that they cannot only double down on the glamorous new economy, while neglecting the baggage left by the old one,” she added. “If the old economy falters too quickly, it will inevitably hinder the rise of the new.” BLOOMBERG