A commercial residential property under construction in Nanning, capital of Guangxi Zhuang autonomous region in south China, is shown in the picture dated March 20, 2024. According to S&P Global Ratings senior analyst Yunbang Xu, China’s fiscal stimulus is becoming less effective and is now primarily a strategy to buy time for industrial and consumption policies. The analysis used growth in government spending to assess fiscal stimulus effectiveness.
The Chinese government has set a goal of achieving around 5% GDP growth this year despite concerns from analysts about the level of announced stimulus. High debt levels limit how much fiscal stimulus a local government can pursue, regardless of the region’s income level.
S&P expects local governments to focus on reducing red tape and improving business environments to support long-term growth and living standards. Investment has become less effective due to a drastic slowdown in the property sector. Xu stated that higher-income cities have seen more effective fiscal stimulus compared to poorer cities, with industry, consumption, and investment being key drivers of economic growth.
Plans to bolster domestic demand include subsidies and incentives for equipment upgrades and consumer product trade-ins, with a focus on increasing spending on equipment. Higher-tech sectors are expected to drive China’s industrial upgrade and long-term economic growth, although overcapacity in some sectors could lead to price challenges in the short term.
China’s fiscal stimulus is becoming less effective and is more of a strategy to buy time for industrial and consumption policies, according to a report by S&P Global Ratings. The growth in government spending is being used as a measure of fiscal stimulus, and it is seen as a buy-time strategy that could have long-term benefits if projects focus on reviving consumption and industrial upgrades. High debt levels limit the amount of fiscal stimulus local governments can undertake, regardless of their income level.
China has set a target of around 5% GDP growth this year, but many analysts believe this goal is ambitious given the level of announced stimulus. Local governments are expected to focus on reducing red tape and improving business environments to support long-term growth and living standards. Investment is less effective amid a drastic property sector slowdown, although fixed asset investment picked up pace in March.
The Chinese government has announced plans to bolster domestic demand with subsidies and incentives for equipment upgrades and consumer product trade-ins, expecting annual spending on equipment to exceed 5 trillion yuan. Higher-income cities have been more successful in implementing fiscal stimulus, as they are less vulnerable to property market declines and have stronger industrial bases and more resilient consumption.
Higher-tech sectors will drive China’s industrial upgrade and long-term economic growth, but overcapacity in some sectors could lead to price pain in the near term. Overall, fiscal stimulus in China is losing effectiveness, and local governments are expected to focus on creating a supportive environment for growth and stability.
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