China is taking steps to revive its flagging economy through a new round of stimulus measures, including increased infrastructure spending and relaxed property investment rules. However, economists remain skeptical about the effectiveness of these measures, reports WSJ.
Recent interest rate cuts by China's central bank reflect growing concerns about the country's economic outlook. Despite solid growth in the first quarter, China faces challenges such as cooling exports, a property market downturn, and high youth unemployment. Many economists doubt that the planned stimulus measures will reverse weakening confidence and prevent a further slowdown.
Beijing is considering issuing around $140 billion of special treasury bonds to help indebted local governments and boost business confidence. These bonds would fund infrastructure projects and initiatives aimed at stimulating economic growth. The removal of purchase restrictions on second homes in smaller cities is also under consideration to bolster the property market.
The latest economic data shows a continued economic slowdown. Retail sales, industrial production, and investment all experienced declines in May. China's struggling property market and soaring youth unemployment add to the challenges faced by the economy.
While raising funds for local governments could restore some confidence, critics argue that using the money for infrastructure projects may worsen China's debt problems without yielding significant long-term benefits. Similarly, lifting purchase restrictions on multiple apartments in smaller cities may not have a significant impact due to factors such as a shrinking population and oversupply.
China's policymakers face the task of implementing effective measures to revive the economy while addressing long-term structural issues for sustainable growth. The central bank's interest rate cuts are expected to be followed by reductions in loan prime rates by major banks.
As China navigates these economic challenges, the success of its stimulus efforts remains uncertain, raising concerns among economists about the country's economic trajectory. Western companies are intensifying their efforts to diversify manufacturing away from China, with the adoption of a "China plus many" strategy becoming increasingly prevalent.
