Chinese economic stimuli

FACTA

China issued a package of measures aimed to kickstart its economy. These include medium term lending facility cuts of 0.3 percentage points (from 2,3% to 2%) announced by the The People's Bank of China, liquidity injections of almost 150 billion USD into the financial market, decrease of the down payment for the property deals and the initiatives aimed at boosting employment of vulnerable groups of population. The measures are coming as a result of longer term economic slowdown in the country. China, which was used to report 2 digit GDP growth rate in the past, was at the end of August forecasted by the UBS Investment bank to reach only 4% GDP growth in 2024. 

FUTURA

Measures supporting consumption have the potential to bring needed positive stimuli to the economy. While the global average share of consumption in a country's GDP is around 75%, China shows a value of only around 55% (see the graph). However, the Chinese economy still faces structural and demographic challenges that will not be easy to resolve. If domestic consumption does not increase significantly, China may have difficulty placing its exports in foreign markets. Low domestic demand could lead to price reductions for excessively produced goods, thus threatening domestic manufacturers in importing countries. This, in turn, could trigger demand for protective trade measures in those countries, aimed at limiting cheap Chinese imports. Such developments can already be seen in the case of Chinese steel. India, which has long been concerned about its growing trade deficit with China, is considering measures on steel imports from China to protect its domestic producers. Japan and South Korea are also announcing anti-dumping measures on Chinese steel. Combined with measures imposed on selected Chinese products by Western countries, China might find itself increasingly isolated in international trade.