Data released on Friday showed that China’s economy In the third quarter, it recorded the slowest pace of growth since early 2023, at 4.6 percent, and although consumption and industrial production data came better than expectations last month, the faltering real estate sector still poses a major challenge to Beijing, which is striving to revive growth.
Since late September, data has been released from People’s Bank The Chinese central bank pledged to reduce prices Interest And pumping more liquidity into the economy, providing financing to securities companies, and statements from the Political Bureau of the ruling Communist Party, which said that it wants to stabilize the real estate market, support the financial market, and shift towards a flexible monetary and financial policy, and from the Planning and Economic Development Committee concerned with planning for the government, in which it pledged a package of policies to support Domestic demand, then a statement from the Minister of Finance himself, who pledged at the beginning of this week to sell more bonds to finance bank capital increases, support local governments, and help consumers.
Will China return to its previous position?
In an analysis published on the website of the British Royal Institute of International Affairs (Chatham House), David Lubin, a fellow researcher in the program, says: Economy The Institute’s Global Finance and Global Finance Institute said that although details are scarce, the Chinese stock market has responded enthusiastically to this wave of government data, but the biggest question for the global economy is whether it can boost… Chinese demand Restoring the country to its former position as a reliable destination for exports and global capital, according to the Associated Press.
With this measure of success in mind, it’s best to keep expectations low. Over the past fifteen years, it has been Chinese authorities Struggling to achieve two conflicting goals on the economic level, the first is increasing power Economy growth The second is to reduce the risk of financial turmoil. . These two goals do not fit comfortably together because efforts to promote growth depend on borrowing; While high debt rates can increase the risk of a debt crisis.
To deal with this dilemma, the economic and monetary policy-making process took place China A pendulum shape that moves in both directions.
Sometimes the authorities work to boost the economy by financing more… Investment spending. Other times this is curbed Motivation If policymakers become more concerned about… Debt rates In the country.
For example in and after Global financial crisis which erupted in the fall of 2008, Beijing’s top priority was to protect the Chinese economy from the risk of recession through stimulus measures financed by borrowing to increase… Investment In infrastructure And real estate.
But by 2012 there was concern that levels were rising Debts It began to control decision-makers, and the economy began to slow down as measures were withdrawn Motivation. In late 2015, Beijing launched a round of stimulus measures, only to be withdrawn again in 2018.
With the pendulum pattern controlling the thinking of policymaking in… China In consideration, optimists say that what Chinese institutions have announced in recent weeks is that they are now back in stimulus mode. This is partly true, but there are three factors that say things are a little different this time, according to David Lubin.
Ghost of debt
The first of these factors is increasing Debt burdens Raises Chinese authorities’ concerns about financial stability. Data from the Bank for International Settlements indicate that Private sector debt in China It has doubled over the past 15 years to reach the equivalent of 200 percent of GDP by the end of 2023, while this rate is decreasing in the United States and the euro area To approximately 150 percent.
The second of these factors is that ideology plays an increasing role in Chinese economic policy. The clearest effect of this role appeared in giving state-owned companies priority at the expense of the private sector. This became particularly evident in 2021, with a campaign aimed at preventing the “unrestrained expansion of capital,” Beijing’s way of expressing its concern that the way private companies behave is inconsistent with the goals of the Communist Party.
Although this phrase is no longer repeated, the “animal spirit” that drives investors to seek expansion and growth is still dormant. This is likely to remain so as long as Chinese President Xi Jinping prefers state-owned companies to be bigger, better and stronger, even though they use capital less efficiently than private companies, according to David Lubin.
The third factor is that the geopolitical risks that Beijing faces today shape Chinese policy. These risks became quite clear in February 2022, after the Russian war against… UkraineWhen the major Western countries decided to freeze… Russian assets And prohibiting the use of the currencies of these countries. This led to a situation Economy of Russia Under a dense network of sanctions that deprived it of access to a wide range of imports.
It is not difficult to think of China facing a similar scenario. Therefore, Beijing’s approach to economic policy is largely influenced by the need to insulate itself from the kind of risks that struck Russia in the wake of its attack on Ukraine.
The current Chinese economic policy can be described as an unequal separation. There is a simultaneous effort to reduce China’s dependence on the world by replacing local products with vital imports on the one hand, and on the other hand it seeks to increase the dependence of the rest of the world on China by presenting itself as a major manufacturing power.
This is the correct context for understanding one of the main economic goals of the Chinese authorities, which is to reduce the economy’s dependence on real estate investment.
The goal is to allow the transfer of capital and financial resources to new sectors of the economy, helping to build this manufacturing power, especially in the fields of advanced technology and green energy. This actually means that any upcoming support for China’s real estate sector will be limited.
Overall, this defensive approach to economic self-reliance curbs Beijing’s desire to increase… Consumer spending. “Public welfare” is also anathema to Xi, so the share of consumption in China’s GDP in 2023 is lower than in 2003.
China’s pendulum policy could now be tilted toward providing some additional support to the domestic economy, especially the deteriorating balance sheets of local governments and helping to rebuild banks’ capital buffers.
But China It did not abandon its central project of unequal separation from Global economySo the prospects for an increasingly self-reliant China, which prioritizes manufacturing over consumption and exports over imports, likely remain the same for the rest of the world.
