China: the government decides strong stimuli, but what will be the consequences?
The Chinese management decides to give a stimulus to the economy , at a time when growth seems to be slowing down sharply and unemployment, especially among young people, is not reducing.
The world's second-largest economy grew at a sluggish pace in the second quarter as demand weakened at home and abroad, mounting pressure on policymakers to provide more stimulus to support the post-COVID recovery.
China will step up economic policy adjustments, focusing on expanding domestic demand, boosting confidence and staving off risks, state-run Xinhua News Agency said, citing the Politburo, a top decision-making body of the ruling Communist Party.
"Currently, China's economy is facing new difficulties and challenges, which mainly arise from insufficient domestic demand, difficulties in operating some enterprises, hidden risks and dangers in key areas, as well as a gloomy and complex external environment," Xinhua said. quoting the Politburo, after a meeting chaired by President Xi Jinping.
China will implement its macro adjustments "neatly and forcefully" and strengthen counter-cyclical adjustments as the government sticks to prudent monetary policy and proactive fiscal policy, the Politburo said.
Xinhua quoted President Xi as saying during a separate meeting that China will work towards its annual development goals. These are currently limited to 5%, which seems like a lot for Europe, but for Beijing it is the minimum of growth.
It is not clear how the intervention will take place: there is talk of an action on the compulsory reserve, the RRR rate, while there is also talk of an intervention at the level of citizens' income, to relaunch domestic demand, especially in the automotive and electronics sectors . Another type of intervention could be related to the real estate market and the rebalancing of supply with local demand. In the construction field, there is talk of the cancellation of certain restrictions on the purchase of real estate.
Furthermore, there is talk of simplifications for the activity of private companies, improving their operating environment and a stabilization of foreign investments.
Will these pushes be able to revitalize the Chinese economy? They certainly seem very effective, but their success can have two unexpected but strong side effects:
- first of all, they can exaggerate internal inflation, with repercussions on citizens' real incomes;
- secondly, it could lead to an increase in the international prices of raw materials, especially oil. An increase in the price of oil and other energy commodities. This would lead to a stagflationary push towards other countries, which could reduce consumption, with repercussions also on the Chinese economy.
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The article China: the government decides on strong stimuli, but what will be the consequences? comes from Economic Scenarios .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/cina-il-governo-decide-forti-stimoli-ma-quali-saranno-le-conseguenze/ on Wed, 26 Jul 2023 07:41:07 +0000.