China has once again made a decisive move to strengthen its economy, with a particular focus on supporting the flagging property sector and addressing the crippling debt burden faced by local governments. However, despite the promise of new measures, many economists remain unconvinced that the government’s actions are enough to tackle the country’s deflationary pressures.
During a highly anticipated briefing on Saturday, Finance Minister Lan Fo’an avoided attaching a specific price tag to the anticipated fiscal stimulus package, which left many investors and analysts disappointed. Instead, he signaled that more concrete details would be released when China’s legislature convenes in the coming weeks. This delayed clarity, combined with the underwhelming nature of the measures announced, has raised questions about the urgency of the government’s approach to bolstering domestic consumption and stimulating growth.
The Chinese economy, once the envy of many nations for its rapid growth, is now facing significant challenges. Deflationary pressures have emerged as a key concern, with weak demand evident across both consumer and producer markets. Consumer prices in September rose less than anticipated, and factory-gate prices—a reflection of the prices manufacturers charge wholesalers—fell for the 24th consecutive month, underscoring the severity of the situation. Yet, deflation barely featured in the hour-long briefing held by Chinese officials, a sign to many that the government is underestimating the problem.
“The policy to support consumption sounds quite weak,” commented Jacqueline Rong, chief China economist at BNP Paribas SA. She highlighted the lack of robust measures to address deflation or a noticeable recovery in the real estate market, both critical to restoring economic momentum. Without more aggressive interventions, economists remain skeptical that China will see a rapid reversal of its economic malaise.
Leading up to the weekend briefing, there was widespread speculation that the Chinese government would announce a stimulus package of up to 2 trillion yuan ($283 billion). Investors hoped this would include subsidies, consumption vouchers, and targeted financial support for families with children—measures that could directly stimulate consumption. But such bold moves did not materialize, further dampening hopes of a quick economic turnaround.
Instead, Finance Minister Lan’s remarks suggested that China’s leadership is relatively comfortable with the current trajectory of the economy. While there were notable pledges to allow local governments to use special bonds to buy unsold homes and relieve some of their debt burden, these measures are unlikely to result in a short-term boost to growth. Many analysts argue that a more urgent focus on boosting consumer spending is necessary to counteract the risk of deflation and ensure a positive growth trajectory.
Lynn Song, chief economist for Greater China at ING Bank N.V., expressed concern that the fiscal policies announced would take too long to implement, jeopardizing China’s ability to meet its 5% growth target for 2024. “Unless the ultimate scale of fiscal stimulus ends up being much larger than forecast,” Song noted, it would be difficult for China to achieve its ambitious growth goals.
At the heart of China’s economic challenges is a slumping property market and the heavy debt burdens carried by local governments. Both issues are deeply intertwined, as local governments have long relied on land sales—a sector now in decline—as a significant revenue stream. In the aftermath of the 2008 financial crisis, many localities borrowed heavily to fund infrastructure projects, a strategy that has left them financially overstretched.
To address these issues, Lan promised that local governments would be able to swap their high-interest debt for cheaper loans, freeing up resources for public services and encouraging more localized spending. Additionally, the use of special bonds to purchase unsold apartments and convert them into social housing could help stabilize plummeting real estate prices, offering some relief to homeowners. However, these measures alone are unlikely to provide a significant short-term economic boost.
In fact, some economists argue that local government debt is largely being shuffled around rather than addressed in a meaningful way. Julian Evans-Pritchard, head of China economics at Capital Economics, described the government’s approach as “shifting debt from one arm of the state to another.” While this may mitigate financial risks, it does little to stimulate immediate demand in the economy.
For years, economists have urged China to shift its economic focus toward domestic consumption. Such a change would reduce the country’s reliance on exports, a critical but increasingly fragile engine of growth, especially given rising geopolitical tensions and global trade uncertainty. However, the government’s reluctance to adopt large-scale handouts or subsidies has hampered efforts to pivot toward a consumption-driven economy.
Beijing has long been cautious about what it terms “welfarism,” a philosophy that discourages widespread social welfare programs. As Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc., noted, there is little political will in China to introduce large-scale subsidies that could be seen as promoting laziness. “No free food for lazy people is the fundamental thinking of policymakers,” Pang remarked, explaining why the government is unlikely to introduce substantial financial aid for the broader population.
Nevertheless, the Finance Ministry did announce plans to double the number of scholarships and expand financial aid to students in response to rising youth unemployment. This move follows an increase in youth joblessness in August, which reached its highest level this year. While helpful in addressing a pressing social issue, these measures fall short of providing the kind of widespread economic stimulus many analysts believe is necessary.
China’s traditional method of driving economic growth through debt-fueled investments in infrastructure projects—from roads to bridges—has also lost some of its potency. After decades of rapid urbanization, the country is now saturated with infrastructure, leaving fewer high-quality projects to invest in. As a result, the government is struggling to find productive ways to deploy the money already at its disposal.
Despite these challenges, the Finance Ministry has indicated that it will expand the sectors eligible for funding through special local bonds. This move could potentially unlock as much as 1 trillion yuan currently sitting idle, according to Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc. While this might provide some economic relief, it is not expected to fundamentally change the country’s growth trajectory.
China’s reliance on manufacturing and exports to offset the downturn in the property sector is increasingly seen as unsustainable. According to Larry Hu, head of China economics at Macquarie Group, the country’s two-speed growth model, in which one part of the economy grows rapidly while another falters, cannot continue indefinitely. As exports weaken and domestic demand stagnates, China may face deeper economic and social challenges.
Hu suggested that authorities may need to pivot their economic strategy soon, particularly if social unrest arises from economic discontent. The urgency of the situation was underscored at the September Politburo meeting, where officials signaled that a shift might be coming. “The strong sense of urgency from the September Politburo meeting suggests that it’s the pivot moment,” Hu wrote in a note. However, whether the necessary policy changes will materialize remains to be seen.
China’s latest attempts to revive its economy through fiscal support for the property sector and local governments have yet to convince many economists that a significant turnaround is on the horizon. While the government has pledged to alleviate the debt burdens of local authorities and stabilize the housing market, these measures are unlikely to provide the immediate boost needed to counteract deflationary pressures.
