Policymakers on Wednesday surprised observers by announcing a 1 trillion yuan ($146 billion) package of growth-boosting measures, just a day after the People’s Bank of China reiterated that it would stick to a policy of limited stimulus.
Despite ongoing troubles in the world’s second-largest economy, Beijing has implemented only sporadically this year after strict Covid-19 lockdowns and a prolonged housing crisis slowed growth Policies to start recovery.
The new initiative, released by the State Council — China’s cabinet — revolves around 19 measures proposed at a meeting chaired by Premier Li Keqiang late Wednesday. They cover a range of goals that the government believes needs support.
Among the subsidies, state policy banks received an additional 300 billion yuan ($44 billion), mainly to finance infrastructure projects. In addition to measures requiring projects to be profitable and targeted, strict regulations were announced.
Local governments were allowed to use more than 500 billion yuan ($73 billion) of existing special bond quotas and pledged to lower financing costs by changing interest rates.
Amid the energy crisis caused by severe drought and heat waves, the cabinet said it would allow central government-run power companies to sell 200 billion yuan ($29 billion) in special debt to ensure sufficient energy supply.
Local governments have also been informed that they have been given greater flexibility to stimulate the housing market, depending on specific local demand levels.
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Various measures introduced State-run CCTV said the companies would also help boost consumer demand. Specific mentions were made to help the digital platform economy, business travel, earmarked funds to support small businesses, and subsidies for agriculture-related businesses. demand-side measures. “Almost nothing has been done to stimulate consumption,” said Michael Pettis, a finance professor at Peking University’s Guanghua School of Management.
The head of China’s Beige Book told MarketWatch, “But for these measures to really reinvigorate the real economy, you have to see policymakers follow through. The biggest issue with stimulus measures announced earlier this year is follow-up. So we’ll be watching our data closely to see if that’s the case. And when will it translate into new activity. So far, nothing has happened.”
Pettis expressed concern about the timing and credibility of the State Department’s new initiative.
“I wonder if it doesn’t make more sense to delay these announcements until COVID restrictions are lifted. The risk is that when announcement after announcement fails to revive the economy, the authorities start to lose credibility,” he told MarketWatch.
Lifting lockdowns and then releasing spending measures could “stun the economy to respond positively,” Pettis said, likening the approach to “China’s equivalent of the Fed.” Bazooka’.”
Repeated calls to the State Council Information Office went unanswered.
Tanner Brown covers China for MarketWatch and Barron’s.
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