Opinion | Beijing must take action to bolster growth, but do not expect drastic moves in the near term
- There is broad consensus that the central government must act to counteract anaemic post-pandemic growth, as premiers have done in the past
- Beijing could bail out financing vehicles or relax property investment rules, but it is likely to roll out new policies slowly
The moment is nearing for Beijing to take forceful measures to save the economy, as the post-coronavirus recovery has proven weak and fragile.
It was only three months ago that the Chinese government’s growth target of “around 5 per cent” for 2023 was seen as a conservative estimate amid expectations of a strong rebound. Now that optimism has largely vanished, with investment banks joining together in cutting growth forecasts for the country this year.
Even China’s official economic data contains bad signs about the world’s second largest economy. The country’s purchasing manager index for May, a gauge of factory activity, dropped to its lowest level since December, in a fresh sign of a weak economy on top of high youth unemployment, weak consumer spending and worsening corporate profits.
While it is far from a classic economic crisis, slow growth and pessimism have fuelled talk about whether China has “peaked”.
Beijing’s response has been largely muted. The government may need more time to observe and analyse the situation, or maybe the changing of the guard at China’s top economic management organs have made it hard to quickly come up with a plan. While economic development remains the ruling Communist Party’s central task, work related to security, ideology and social control often wind up taking priority.
But Beijing cannot ignore the country’s economic reality. Long-term stability, security and prosperity require steady economic growth, and in the short term, poor economic performance can lead to social problems.
China’s poor fiscal situation in some places has started to affect basic public services, with an immediate impact on social stability. For instance, there have been sporadic reports of unpaid doctors and teachers – most of whom are paid from state funds. Salary cuts for government employees in the form of reduced subsidies or bonuses are also not uncommon.
These events lend credibility to speculation that Beijing is discussing plans to propel growth. After all, former Chinese premiers similarly deployed Keynesian stimulus in the past.