China's economic outlook is under renewed scrutiny following the announcement of substantial stimulus measures aimed at addressing the challenges faced by the world's second-largest economy. On September 24, 2024, the People's Bank of China unveiled new policies to tackle declining economic growth and rising deflationary pressures, which have raised concerns about the feasibility of hitting the government’s target of around 5 percent growth for the year.
The recently initiated measures include cutting mortgage rates for existing housing and reducing the reserve requirement ratio—essentially, the amount of cash banks must hold as reserves—which are expected to inject significant liquidity back to the market. Governor Pan Gongsheng, at the press conference where these measures were announced, stated the mortgage rate would see a cut by half a percentage point, benefiting approximately 50 million households by decreasing household interest expenses by about 150 billion yuan per annum.
Banking experts are watching closely as this strategy aims to rejuvenate consumer spending and confidence, two elements severely dampened by the current economic climate. The central bank's decision signals their commitment to shoring up the economy, especially after the country’s GDP growth slowed down to just 4.7 percent year-on-year for the second quarter and other indicators such as retail sales and industrial output showed disappointing results.
The measures, deemed extremely extensive, surpass many analysts’ expectations. They also included lowering down payments for second-hand homes, setting down new minimum ratios at 15 percent from previously higher percentages, and enhancing liquidity for the stock market. Stocks surged as the announcement stirred optimism among investors. The Shanghai and Hong Kong markets both jumped over 4 percent on the same day.
While these monetary policies have been received as positive initial steps, some economists argue they may not be enough. The consensus is growing among analysts about the necessity of enhanced fiscal support to address underlying weak demand effectively. This discussion positions fiscal policy as indispensable for reviving the economy, with experts underscoring the need for the government to act as the primary consumer spender rather than merely acting as a lender.
A similar sentiment surfaced recently when Miniso Group—a fast-growing retailer—announced plans to buy a majority stake in the Yonghui Superstores chain, signaling their ambitions to shift the dynamics of the retail scene, which has been hampered by slowing consumer behavior. Miniso will invest approximately 6.27 billion yuan for nearly 30 percent of Yonghui, aiming to capitalize on their expertise in affordable consumer goods. The acquisition follows Yonghui's own attempts to revamp its business model to compete more effectively with smaller, more agile retailers.
Yonghui’s transformation efforts reflect broader trends within the Chinese retail sector, which is pivoting toward enhanced customer experiences and quality offerings. With plans to remodel stores following the style of popular small grocery chains, Yonghui’s initiatives aim to reinvigorate sales, which have suffered considerably amid changing consumer preferences.
Despite the optimism surrounding the Miniso acquisition, investors expressed concern over the impact of such expansive moves during financially precarious times. Miniso's stocks experienced significant downturns post-announcement, indicating apprehensions about the company's strategy to invest heavily amid uncertain economic conditions.
It is worthwhile to note the broader economic picture as China's economy continues to grapple with significant headwinds, including stagnant consumer spending coupled with increasing deflationary pressures. The introduction of these monetary and fiscal measures reflects older strategies used during economic slowdowns, but the timing and execution may prove challenging as recovery from the COVID-19 pandemic remains uneven.
With various stakeholders—from policymakers to business leaders—expressing the urgent need for sustainable recovery strategies, the coming months will be pivotal for assessing the effectiveness of these measures. The economy’s path will likely depend not only on monetary policy adjustments but also on decisive fiscal actions to stimulate demand and stabilize the marketplace.
China will release its third-quarter GDP results on October 18, which could reveal how well these measures are enacting change. Early indications point to marginal improvements, but substantial risks remain if demand continues to lag. The broader international community is also watching closely, as China’s economic health is closely tied to global markets, underlining its importance on the world stage.
