China doubles down on moves to mend its economy and fend off a financial crisis (2024)

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FILE - People wearing face masks walk by construction cranes near the office buildings at the central business district in Beijing, on March 15, 2023. China's leaders have mounted a campaign to build confidence in the slowing economy by freeing up billions of dollars in cash for property lending and other spending. (AP Photo/Andy Wong, File)

BANGKOK – China’s leaders launched a barrage of new policies this week to prop up languishing financial markets and rekindle growth in the world’s second-largest economy.

The moves to support lending and spending with billions of dollars of fresh cash gathered pace when the central bank cut bank reserve requirements and issued new rules to encourage banks to lend more to property companies.

A collapse in China’s real estate market has been one of the key factors hindering the country’s recovery from the shocks of the COVID-19 pandemic. What’s at stake: stable financial markets and a major driver of global economic growth.


The Chinese economy grew at a 5.2% annual pace in 2023, exceeding the government's target, and many indicators including factory output and retail sales show signs of improvement. But most economists are forecasting a slowdown this year and next that will drag on global growth. Meanwhile, Chinese stock markets have swooned since late 2023, deepening losses that amount to trillions of dollars over the past several years. A real estate downturn, job losses and other trials of the COVID-19 pandemic have left consumers cautious about spending. That threatens to become what some economists say could be a deflationary spiral as prices for housing and other goods fall, discouraging investment that would create jobs and spur a stronger recovery.


The weakening economy and crackdowns on the technology industry, along with disruptions during the pandemic and trade tensions with the United States, have left foreign investors wary about the business outlook in China. Premier Li Qiang chaired a meeting of the State Council, or Cabinet, this week where he said more has to be done to “stabilize the market and boost confidence.” Last week, speaking at the World Economic Forum in Davos, Switzerland, he sought to sell investment in China as “not a risk, but an opportunity.”

A vital priority is ensuring growth is fast enough to generate ample jobs for young workers as they leave school. The rate of unemployment among young Chinese surged in 2023 to a record of over 21%. It's fallen since to about 15% but still remains perilously high, adding to the urgency to get growth back on track.


The central bank will cut the ratio of reserves it holds on behalf of banks by 0.5 percentage points as of Feb. 5. People's Bank of China Gov. Pan Gongsheng said that would free up an extra 1 trillion yuan ($140 billion) in funds. The PBOC also reduced the interest rate banks charge each other and issued new rules meant to expand access to commercial bank loans for property developers. Until the year's end, real estate companies will be allowed to use bank loans pledged against commercial properties such as offices and shopping malls to repay their other loans and bonds. Earlier, regulators cut mortgage rates and lifted curbs on property buying. After share prices tumbled, state-owned institutional investors reportedly were ordered to buy shares.


Dozens of developers defaulted on their debts after the government cracked down on excessive borrowing in the industry several years ago. The largest, China Evergrande, is still trying to resolve more than $300 billion in debts and a Hong Kong court is due to hold a hearing on its restructuring plans next week.

It’s unclear what impact the new policies might have on the overall crisis gripping the property market. Land sales have long been a major revenue source for local governments that also are now heavily in debt. At the same time, stalled construction of new homes has hit contractors and suppliers of construction materials and home furnishings. That has wiped out untold numbers of jobs, rippling through the economy. Sales of new homes and home prices have been falling, discouraging consumers from spending since Chinese families tend to have much of their wealth tied up in property. The industry as a whole accounts for more than a quarter of business activity in China.


As China’s rapid rise as an economic superpower loses momentum, foreign investors and consumers are watching for signs that Beijing has a clear game plan for navigating the economy through an era of slower growth.

The moves to put more money into the economy and encourage bank lending might not go far enough, many analysts said. The cut in required bank reserves frees up more credit, but “it doesn’t tackle the root issue; hence you can lead a horse to water, but you cannot make him drink,” Stephen Innes of SPI Asset Management said in a report. Economists tend to concur that longer-term reforms, such as creating a better social safety net to enable families to spend rather than stashing their rainy day savings in banks, are needed to sustain strong growth. Too much of the nation's wealth still goes into construction of infrastructure such as roads and railways, and uncertainty over policies has discouraged investment in small, private businesses that create the most jobs.

Copyright 2024 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

As an expert in economics and global financial markets, I can provide valuable insights into the recent developments in China's economic policies, especially regarding the measures taken to address the challenges in the real estate sector and stimulate overall economic growth.

The article highlights several key concepts, and I will break down the information accordingly:

  1. Current State of the Chinese Economy:

    • The Chinese economy grew at a 5.2% annual pace in 2023, surpassing the government's target.
    • Positive signs, such as improvements in factory output and retail sales, indicate recovery.
    • However, economists predict a slowdown in the coming years, which could impact global growth.
    • Chinese stock markets have faced challenges since late 2023, resulting in significant losses.
  2. Issues Impacting China's Economy:

    • The real estate market collapse has been a major hindrance to the country's recovery from the COVID-19 pandemic.
    • Job losses, technology industry crackdowns, pandemic disruptions, and trade tensions have made foreign investors cautious about China's business outlook.
  3. Motivation Behind Policy Actions:

    • Premier Li Qiang emphasizes the need to stabilize the market and boost confidence.
    • External factors, including economic weakening, technology industry crackdowns, and trade tensions, have left foreign investors wary.
    • Ensuring fast enough growth to generate ample jobs for young workers is a vital priority, given the surge in youth unemployment.
  4. Government Actions:

    • The central bank is cutting bank reserve requirements by 0.5 percentage points, releasing an additional 1 trillion yuan ($140 billion) in funds.
    • Interest rate reductions, new rules to expand access to bank loans for property developers, and easing restrictions on property buying are part of the measures.
    • Real estate companies are allowed to use bank loans against commercial properties to repay other debts.
  5. Property Crisis Impact:

    • Previous government crackdowns on excessive borrowing led to defaults among developers.
    • Major developers, including China Evergrande, are dealing with significant debt issues.
    • The property crisis affects local governments, construction-related industries, and consumers' spending behavior.
  6. Concerns and Criticisms:

    • Analysts express concerns that the measures might not go far enough to revive the economy in the long term.
    • The cut in bank reserve requirements is seen as addressing a symptom rather than the root issue.
    • Longer-term reforms, such as improving the social safety net and encouraging investment in small businesses, are considered essential for sustained growth.
  7. Global Impact:

    • As China's economic growth slows, foreign investors and consumers are closely observing Beijing's strategies.
    • The effectiveness of the measures in navigating through a period of slower growth is under scrutiny.

In conclusion, the Chinese government's recent economic policies aim to address immediate challenges, especially in the real estate sector, while broader and longer-term reforms are deemed necessary for sustainable and robust economic growth.

China doubles down on moves to mend its economy and fend off a financial crisis (2024)
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