China made headlines this week after announcing an ambitious 19-point plan worth A$63 billion to bolster its ailing financial system.
But according to a number of experts, it may not be enough to save the fortunes of the world’s second-largest economy.
On Wednesday, Chinese media reported that the State Council had decided on the strategy to stabilize the economy, which has been seriously weakened by the covid pandemic and ongoing lockdowns coupled with the nation’s alarming real estate crisis, and now a unprecedented heat wave and drought. which has led to massive factory closures.
Under the scheme, billions will be spent on infrastructure to stimulate the economy, along with a host of other measures.
Premier Li Keqiang was full of optimism after the announcement was made, confidently stating that the funds will “expand effective investment, boost consumption and help keep economic activities on a stable course.”
As expected, the spokesman for the Chinese Communist Party, the global times echoed that sentiment, insisting that “the continued prosperity of the economy will prevail” and highlighting the “attractiveness of the Chinese market for foreign investors, regardless of overall global sluggishness, reaffirming investors’ faith in the Chinese economy.” as a stabilizer of world growth”.
But outside of China, the reaction was less glowing.
Emergency package ‘not enough’
According to Chang Shu and David Qu of Bloomberg Economics, “China’s latest package is not enough to turn the economy around.”
“It will create more public demand that will partially fill a growing gap left by a retreating private sector, providing some support for growth,” they wrote.
“What it won’t do is create a confidence boost that is needed to encourage households to spend more and businesses to invest more.”
Bloomberg also reported that Goldman Sachs economists said China’s 19-point plan would not be adequate to lift the 3 percent growth rate forecast by the organization.
“We are winding down, but not fast enough to keep pace with the general economy’s deterioration,” Andrew Tilton, chief Asia Pacific economist at Goldman Sachs, told the publication.
That sentiment was echoed by IG Markets analyst Hebe Chen, who told news.com.au that China was likely to suffer much more.
“What I see in the long list of the stimulus package is that Beijing is deliberately diverting attention away from its beleaguered property and financial problems and the long-criticized Covid Zero policy, which few will argue is the crux of the matter, towards a temporary pain. killer,” he said.
“While these megaprojects seem like the nation is trying to replicate their past success with similar formulas, the economic environment has changed dramatically, locally and globally. “Domestic, the real estate sector, which has powered China’s economy for the last two decades, has collapsed and nobody knows how bad it can be. Externally, the rapidly deteriorating relationship between China and most of its trading partners is poised to deconstruct the booming economy that the labor-intensive country has benefited from since the 1980s.
“Unfortunately, none of those concerns have been deeply addressed in the 19-point plan.”
Thomas Westwater, an analyst at Daily FX and IG, agreed, telling news.com.au that “China’s economic woes are potentially just beginning.”
“The fact that China is the only major economy loosening monetary policy today is surprising in its own right,” he explained.
“Now, amid broader increases in energy costs, the Asian economic powerhouse is grappling with scorching heat waves and droughts that threaten to fuel China’s energy crisis. Enough that the government is using drones to dispense chemicals that make it rain in the sky over Sichuan province.
“Power-hungry factories are often the first to shut down in China, and that has the potential to delay or even reverse recent progress made in normalizing supply chains.
“While the outages are only having a marginal impact on factory activity for now, uncooperative weather can easily exacerbate the situation. A bullish reaction in metal prices, especially aluminum, would be expected, but still weak downstream demand is likely to have tempered a strong reaction.
“As much of China’s manufacturing activity is driven by foreign demand, expansionary monetary and fiscal support from the central government may have limited impact against global central bank tightening that is likely to reduce global consumption.”
The latest moves come amid a turbulent time for China, which is enduring a devastating drought and heat wave that has seen dozens of factories close in Sichuan in a desperate bid to protect energy supplies.
This development is a huge blow given that the province is a major hub for lithium mining, solar panel and semiconductor production with a host of big-name companies including Apple and Tesla already affected.
The spokesman for China’s National Bureau of Statistics, Fu Linghui, recently acknowledged at a press conference that the heat wave had already caused “adverse effects on economic operations,” and that things will get worse before they get better with soaring temperatures they will last for some time.
Meanwhile, Chinese homeowners continue to engage in unprecedented mortgage boycotts as the real estate industry falters.
Hundreds of thousands of citizens have banded together and refused to make their mortgage loan payments on delayed housing projects, given that in China, it is common for mortgage payments to be made before new properties are completed, which will affect billions in mortgage loans.