As China prepared for its annual Golden Week holiday—a time of national pride and celebration, especially this year as the country marks the 75th anniversary of the founding of the People’s Republic—the Chinese Communist Party unveiled a series of economic measures designed to address the country’s ailing economy. This sweeping stimulus package, aimed at rejuvenating multiple sectors, included targeted support for China’s struggling property market, stock market incentives, and direct cash assistance to its poorest citizens. It also promised increased government spending to spur growth.
The initial reaction to these announcements was overwhelmingly positive in financial markets. Stocks in mainland China and Hong Kong surged, posting some of their best gains in over a decade. However, economists and analysts caution that while the policies have sparked short-term investor optimism, they may fall short of addressing China’s deeper, structural economic challenges.
On September 24, the People’s Bank of China (PBOC) rolled out a new set of tools specifically designed to revive China’s battered stock market. These initiatives included the creation of an 800 billion yuan ($114 billion) fund that would provide liquidity to insurers, brokers, and asset managers, enabling them to purchase more shares. This fund was intended to stabilize stock prices and restore investor confidence, which had been sagging due to economic uncertainty.
Pan Gongsheng, the governor of the PBOC, also announced measures to help listed companies repurchase their own shares, thus improving stock value and market stability. He further revealed plans to reduce borrowing costs and allow banks to expand their lending activities, a move aimed at increasing credit availability across multiple sectors of the economy.
Just two days later, President Xi Jinping chaired an unexpected meeting of the Politburo—the top decision-making body in China—where the focus was squarely on the economy. The leaders agreed to intensify government spending, promising further support for economic growth and outlining their strategy to stabilize key industries.
In response to these announcements, the Shanghai Composite Index saw a record 8% jump on the last trading day before Golden Week, marking its best performance since the 2008 global financial crisis. The surge capped off a five-day rally during which the index gained 20%, signaling renewed investor optimism. Hong Kong’s Hang Seng Index followed suit the next day, posting a 6% rise in the absence of mainland Chinese markets, which were closed for the national holiday.
For many investors, the government’s announcements were cause for celebration. “Investors loved the announcements,” remarked China analyst Bill Bishop. The government’s strong market intervention offered hope that a floor was being set under the stock market, which had experienced months of instability.
However, beneath the surface of market gains lies the broader reality that China’s economy continues to face significant challenges. The 75th anniversary of the founding of the People’s Republic carries symbolic weight, as China has now surpassed the lifespan of the Soviet Union, which collapsed 74 years after its founding. This milestone has led to growing concerns among Chinese leaders that they must avoid the fate that befell the Soviet state.
“Avoiding the fate of the Soviet Union has long been a key concern for China’s leaders,” said Alfred Wu, an associate professor at the Lee Kuan Yew School of Public Policy in Singapore. “This anniversary serves as a reminder of the importance of maintaining political and economic stability.”
One of the most pressing issues for China’s leadership is meeting its official economic growth target of 5% for the year. This goal has become increasingly difficult to achieve, given the slowdown in key sectors like real estate and manufacturing. Experts warn that missing this target could further erode confidence in China’s economic prospects, both domestically and internationally.
“In China, targets must be met, by any means necessary,” said Yuen Yuen Ang, a professor of political economy at Johns Hopkins University. “The leadership worries that failing to meet them in 2024 will worsen a downward spiral of slow growth and low confidence.”
Indeed, one of the biggest drags on China’s economy over the past three years has been the downturn in the property market. Real estate is a cornerstone of China’s economic model, accounting for a significant portion of domestic investment and household wealth. The sector’s collapse has not only led to a sharp decline in construction activity but has also contributed to plummeting consumer confidence, as homebuyers fear their properties may lose value or go unfinished.
To address the ongoing property market crisis, the government’s new stimulus package includes measures aimed at increasing bank lending, cutting mortgage rates, and lowering the minimum down payment for second-home buyers. These policies are intended to stimulate demand in the housing market and help real estate developers complete projects that have been stalled due to financial difficulties.
However, many economists remain skeptical about the effectiveness of these measures. “Those measures are welcome but unlikely to shift the needle much in isolation,” said Harry Murphy Cruise, an economist at Moody’s Analytics. “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 to do so.”
The challenge, experts say, is that falling house prices have created a vicious cycle in which potential homebuyers are reluctant to invest, fearing that their purchases will lose value. This has led to a significant drop in property transactions, further weakening the market and contributing to the broader economic slowdown.
Sophie Altermatt, an economist at Julius Baer, noted that “ensuring the delivery of pre-sold but unfinished homes would be key” to restoring confidence in the housing market. However, she emphasized that broader, long-term reforms are needed to stabilize the sector and the economy as a whole. “In order to increase domestic consumption on a sustainable basis, fiscal support for household incomes needs to go beyond one-off transfers and rather come through improved pension and social security systems,” Altermatt said.
At the Politburo meeting, Chinese leaders acknowledged the need for more aggressive government intervention. In addition to the central bank’s interest rate cuts, officials committed to tapping government funds to boost growth. Their priorities included stabilizing the property market, supporting domestic consumption, and reducing unemployment, which has become a growing concern, especially among younger workers.
However, the details of this fiscal stimulus remain unclear. Leaders did not specify how much additional funding would be allocated to these efforts, nor did they outline a timeline for when the measures would be implemented. This lack of clarity has led some analysts to warn that the government’s plans may fall short of market expectations.
“Should the fiscal stimulus fall short of market expectations, investors could be disappointed,” said Qian Wang, chief economist for the Asia Pacific region at Vanguard. “In addition, cyclical policy stimulus does not fix the structural problems,” she added, cautioning that without deeper reforms, the Chinese economy’s underlying issues are unlikely to be resolved.
China’s economic problems go beyond short-term market volatility and consumer confidence. The country faces deep-rooted structural challenges, including an aging population, declining productivity, and over-reliance on debt-fueled investment in infrastructure and real estate. These issues have created imbalances in the economy that are becoming increasingly difficult to manage.
Xi Jinping’s administration has made efforts to transition China toward a more balanced economic model, one that is less dependent on old drivers of growth such as property and infrastructure investment. Instead, Xi has championed “high-quality development” and “new productive forces,” which focus on innovation, technology, and high-end industries.
An editorial published in the state-controlled People’s Daily on the 75th anniversary struck an optimistic tone, arguing that these new development concepts are key to unlocking China’s future potential. “While the journey ahead remains challenging, the future is promising,” the article said.
Yet, the transition to a new economic model is fraught with difficulties. “The old and the new economies are deeply intertwined; if the old economy falters too quickly, it will inevitably hinder the rise of the new,” noted Yuen Yuen Ang. “This is what the leadership has come to realize and is responding to.”
As China embarks on its 75th year as a communist state, it faces a critical juncture. The government’s recent policy announcements have given markets a short-term boost, but long-term challenges remain. The property market continues to struggle, consumer confidence is weak, and the economy’s structural imbalances are becoming more pronounced.
While Xi Jinping and the Politburo have acknowledged the need for greater government intervention, the effectiveness of these measures remains to be seen. Investors may be celebrating now, but without deeper reforms, China’s economic problems are likely to persist.
As Alfred Wu pointed out, avoiding the fate of the Soviet Union will require more than just short-term fixes—it will require a fundamental shift in China’s approach to economic growth and governance. Whether or not the leadership can achieve that remains one of the most pressing questions as China moves forward into its next phase of development.
