China expressed its confidence in the possibility of achieving its economic growth goals this year. This was stated by the Chairman of the National Development and Reform Commission, Jing Shanji, who pledged to support growth but without announcing new stimulus measures for the economy. The failure to announce stimulus measures disappointed the markets’ expectations.
“We are all confident that the economic and social development goals will be achieved this year,” Jing said during a press conference in Beijing on Tuesday. “We have full confidence in continuing stable, sound and sustainable development.”
Bonds and investments
Officials at the National Development and Reform Commission said they will accelerate spending while reiterating plans to boost investment and increase direct support for low-income groups and recent graduates, adding that China will continue to issue long-term sovereign bonds next year to support major projects and provide investments worth 100 billion yuan ($14 billion). This year it was originally intended for 2025.
Liu Suchi, vice chairman of the National Development and Reform Commission, said the agency would also urge local officials to issue the remainder of this year’s new special bonds – worth about 290 billion yuan ($41.11 billion) – by the end of this month.
In 2023, China ordered provinces to use this year’s quota of special domestic bonds before adding 1 trillion yuan ($141.78 billion) of sovereign bonds in late October to stimulate the economy.
The National Development and Reform Commission said that certain sectors, such as basic public services in cities and intercity transportation networks, will receive more financing support from government bonds.
disappointment
Investors were hoping for new measures to revive the economy, 10 days after a first payment led to a significant improvement in the stock market.
But the authorities disappointed hopes, as committee officials did not announce any new measures despite the difficulties facing the Chinese economy, especially the real estate sector crisis and declining household consumption.
China, the second largest economy in the world, set a growth target of about 5% this year, a number considered optimistic by a number of analysts in a country that has been suffering since the end of the Corona pandemic.
The Shanghai and Shenzhen stock exchanges opened on Tuesday with an increase of more than 10%, but they fell partly due to the absence of a new stimulus announcement. At the time of writing this report, the Shanghai Stock Exchange rose 4.6% and the Hong Kong Stock Exchange fell 9.4%.
Real estate sector
After separate announcements in recent months that had no apparent impact, the Chinese authorities revealed at the end of last September measures of unprecedented magnitude in years, including reducing the interest rate and facilitating the terms of real estate loans.
This package of measures led to a significant rise in the Hong Kong and Chinese stock exchanges by more than 20%.
Most of the measures so far have targeted the real estate sector, which has long been the engine of Chinese growth, but is currently suffering a deep crisis, like the contracting companies Country Garden and Evergrande, which are immersed in high debt and on the verge of bankruptcy.
The Central Bank, in particular, reduced the one-year interest rate at financial institutions, and reduced the guarantees necessary to obtain a real estate loan, as well as the interest on mortgages.
Major Chinese cities also announced the lifting of some local restrictions that were believed to prevent the purchase of real estate, especially in Beijing, Shanghai, Canton, and Shenzhen.
Structural reforms
“If we look at the current development and development expectations, the foundations of our country’s economic development have not changed,” Jing Shangji stressed on Tuesday, adding, “With the continued implementation of various policies, especially the gradual measures packages, the market prospects have improved significantly.”
Analysts were hoping for new measures, especially financial support measures, including issuing bonds or support policies for household consumption.
But they also warn that deeper reforms of China’s economic system are needed to reduce the debt burden in the real estate sector and revive the economy to remove major impediments to growth.
Before Changji’s statements, Natixis’ chief economist for the Asia-Pacific region ruled out a major change unless China adopts structural reforms to revive the economy, from unemployment benefits to pensions.
Shehzad Qazi, an analyst at China Big Book, believed that growth will be achieved in the short term, stressing that “the Chinese economy is not in crisis and (Beijing) does not need to announce a broad financial spending program for the rest of the year to help achieve the goal of GDP growth.”
But in the long run, he thought, more would likely need to be done.
He said, “The real question is to know whether Beijing will announce a spending program in several stages for the year 2025 and beyond, which includes a solution to the structural problems that hinder the economy’s transition to a model supported by consumption.”
