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

BANGKOK (AP) — 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.

HOW IS THE CHINESE ECONOMY DOING?

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.

WHY ARE CHINA’S LEADERS ACTING NOW?

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.”

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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.

WHAT IS THE GOVERNMENT DOING?

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.

WHY IS THE PROPERTY CRISIS SUCH A BIG PROBLEM?

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.

HOW WILL THE MEASURES TAKEN SO FAR AFFECT ORDINARY FOLKS?

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.

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

FAQs

What was China's response to the financial crisis? ›

The Chinese government moved quickly to mitigate falling GDP growth after the GFC through a stimulus package and monetary expansion. In November 2008 the government introduced a 4 trillion Yuan stimulus package (14 per cent of 2008 GDP) for 2009 and 2010. The success of China's stimulus package is unsurprising.

Is China going through an economic crisis? ›

China is in the midst of a profound economic crisis. Growth rates are flagging as an unsustainable mountain of debt piles up; China's debt-to-GDP ratio reached a record 288% in 2023.

How did China fix their economy? ›

After the 2008 financial crisis, local governments in China made massive investments in domestic infrastructure and property development, making a bet that property prices would continue increasing. Real estate now accounts for about a quarter of China's GDP.

Is China in bad financial situation? ›

Challenges multiply after the country's years of rapid growth. China's economy is at a turning point. An old economic model underpinned by heavy investment in infrastructure and real estate is crumbling. Growth is slowing and prices are falling, raising the specter of a Japan-style slide into stagnation.

Did China help us in the 2008 financial crisis? ›

China pulled the US out of the 2008 financial crisis, a Chinese expert said on Thursday, saying that China's opening-up is win-win. "China made the largest contribution for the US to recover from the financial crisis over the past 10 years.

How did China respond to the 2008 crisis? ›

In addition to aggressive monetary policy, the Chinese government also launched a 4 trillion RMB (US$586 billion) fiscal stimulus in November of 2008—an amount more than 12 percent of China's GDP.

What country has the best economy? ›

The United States is the undisputed heavyweight when it comes to the economies of the world. America's gross domestic product in 2022 was more than 40% greater than that of China, the world No. 2. Even more striking, U.S. GDP was over five times that of the next two largest economies, Japan and Germany.

Is America's economy better than China? ›

China's Economy Falls Further Behind US

But it also reflects a more vibrant state of economic activity. Consumer spending continues to contribute the bulk of growth, while private-sector investment and trade also contributed, along with government spending.

Is the US growing faster than China? ›

The US has pulled further ahead of China in the race for world's biggest economy, thanks in part to a vibrant American consumer. US gross domestic product rose 6.3% in nominal terms — that is, unadjusted for inflation — last year, outpacing China's 4.6% gain.

What is life like in China for the average person? ›

It's exhilarating and infuriating, but, overall, offers many amazing rewards. Here, you'll face cultural and language barriers, enjoy delicious meals, travel often, navigate bureaucracy, make money, and experience a wonderful standard of living, far superior to what you'd have at home.

What steps has China taken to improve economy? ›

The government subsequently established a number of areas for foreign investment, including the special economic zones, open coastal cities, the economic and technology development zones, the delta open zones, the peninsula open zones, the open border citiees, and the high-tech industry development zones.

Is China an economic threat to the United States? ›

The counterintelligence and economic espionage efforts emanating from the government of China and the Chinese Communist Party are a grave threat to the economic well-being and democratic values of the United States. Confronting this threat is the FBI's top counterintelligence priority.

Will the Chinese economy affect the US? ›

That had a negative impact on business activity for some U.S. companies dependent on Chinese suppliers. An additional way events in China can affect the U.S. and other world markets is that China represents the second largest economy in the world and the largest emerging market in terms of stock valuation.

Is China's economy good right now? ›

Domestic demand in China has remained sluggish and contributed to low inflation, while the policy space for stimulus is constrained. Weak business confidence, in part driven by the property market downturn, continues to weigh on growth. Over the medium term, China's economy is expected to undergo a structural slowdown.

Why was China not affected by the 2008 financial crisis? ›

China was not well integrated into the global financial system, so there was not much effect through financial channels. But as the impact of the crisis was felt in the United States and Europe, China was hit with a big shock through its trade sector.

Why China was not affected by 1997 financial crisis? ›

The interplay of several factors—macroeconomic, structural, and policy related—helps explain China's relatively favorable economic performance during the crisis. These factors combined to defend the economy against external shocks, contain domestic vulnerabilities, and support internal demand when exports slowed.

What happened to China during the Great Depression? ›

The economy plunged into a severe recession, forcing the Nationalist regime in 1935 to jettison the silver standard and establish a new monetary system that required close supervision by technocratic elites.

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