Save me, Save me, the China economy was calling for help, and here are some major developments being taken by the chief - China’s Bold Moves to Supercharge its Economy.
China’s President, Xi Jinping, is taking significant steps to shore up the nation’s economy. These measures come at a time when China is facing economic challenges and uncertainties. President Xi’s decisive actions are aimed at bolstering economic growth, ensuring fiscal stability, and providing a safety net for local governments that have been grappling with economic difficulties.
Fiscal Support for Local Governments
One of the key initiatives announced is the formalization of a process allowing local governments to borrow funds for the upcoming year, starting in the preceding fourth quarter. This approach is designed to provide stability in fiscal policy. The State Council, China’s top executive body, will play a crucial role in determining the borrowing amounts for local governments. This framework is set to extend for four years, through the end of 2027.
The Deputy Director of the Economics Policy Commission at the China Association of Policy Science has stated that while China is on track to achieve its growth target of around 5% for this year, there is substantial economic pressure expected for the following year. These measures are expected to support economic growth drivers, which are currently insufficient.
Boosting Confidence and Growth Outlook
China’s economic landscape has faced headwinds, with the International Monetary Fund (IMF) recently lowering its growth forecast for the nation. The IMF cited weaknesses in China’s real estate sector, along with pressures related to debt repayments, home sales, and investment.
However, recent economic data indicates a more optimistic outlook. China reported that third-quarter gross domestic product (GDP) grew by 4.9%, exceeding expectations and contributing to forecasts of full-year growth of around 5% or potentially even more.
To complement these efforts, Chinese authorities also announced the issuance of 1 trillion yuan ($137 billion) in government bonds for natural disaster relief. This announcement came as a surprise to the market, as China rarely revises its budget. The move is seen as a step in the right direction to make fiscal policy more supportive, particularly given the deflationary pressures in the economy.
Zhiwei Zhang, President and Chief Economist at Pinpoint Asset Management, highlighted that part of the funds raised through these bonds would be utilized next year. This proactive fiscal policy adjustment is expected to boost the growth outlook beyond the fourth quarter.
Presidential Visit to Central Bank and Market Response
Notably, President Xi Jinping made his first known visit to the People’s Bank of China since taking on the nation’s top leadership role. This visit underscores the government’s commitment to ensuring economic stability.
Market futures for China stocks, including Hong Kong-traded stocks, responded positively to these developments, with significant increases in value. These market responses highlight the positive sentiment and confidence that these measures are instilling in investors and analysts alike.
In addition to these economic adjustments, the announcement of Lan Fo’an replacing Liu Kun as Minister of Finance is another notable development. Experts see the higher debt-to-GDP ratio and the additional issuance of debt as potential sources of extra policy support. These measures are expected to provide more resources to navigate macroeconomic headwinds and uncertainties, creating the potential for a stronger and faster economic recovery.
Hong Kong Initiates Significant Property Tax Cuts and Waivers
Meanwhile, in Hong Kong, significant steps are being taken to revitalize the sluggish real estate sector. This marks the first relaxation of property tax policies that were initially introduced in 2010 to mitigate soaring property prices in a low-interest rate environment.
Hong Kong Chief Executive John Lee outlined the rationale behind these policy shifts. The measures aim to stimulate the market, responding to the decline in residential property transactions attributed to rising interest rates and moderate economic growth. Notably, stamp duties for both residents and non-permanent residents will be halved, and levies for properties held for less than two years have been reduced. Moreover, newly arrived foreign talent will enjoy full levy waivers upon obtaining permanent residency. These adjustments come in response to falling home prices, with the housing price index down 7.9% year-on-year.
In summary, both China and Hong Kong are adopting proactive economic policies to tackle challenges and nurture growth. President Xi’s leadership, coupled with fiscal initiatives and market-oriented actions, signals resilience in the face of economic uncertainties.
Disclaimer: This post has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.