Pictured is a commercial residential complex under construction on March 20, 2024, in Nanning, capital of the Guangxi Zhuang autonomous region in southern China.
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BEIJING – S&P Global Ratings senior analyst Yunbang Xu said in a report on Thursday that China's fiscal stimulus is losing its effectiveness and looks like a strategy to buy time for policies industrial and consumer.
The analysis uses growth in government spending to measure fiscal stimulus.
“In our view, fiscal stimulus is a buying strategy over time that could yield some longer-term benefits, if projects focus on reviving consumption or lifting industrial level to increase added value”.
China has established one GDP growth target is about 5% This year, a target that many analysts said was ambitious given the level of stimulus was announced. The head of the top economic planning agency said in March that China will “strengthen macroeconomic policy” and enhance coordination between fiscal, monetary, employment, industrial and regional policies.
S&P's report said high debt levels limit the amount of fiscal stimulus local governments can provide, regardless of whether a city is considered a high- or low-income area.
The report said public debt as a proportion of GDP could range from about 20% for the high-income city of Shenzhen, to 140% for the much smaller, low-income city of Bazhong in Southwest Sichuan province.
“Given financial constraints and diminishing efficiency, we expect local governments to focus on reducing bureaucracy and taking other measures to improve the business environment,” said S&P's Xu. as well as supporting long-term growth and living standards.”
“Investment is inefficient in context [the] sharp downturn in the real estate sector,” Xu added.
According to official data released this week, fixed asset investment for the year so far accelerated in March compared with the first two months of the year, thanks to a rapid increase in investment in manufacturing. Investment in infrastructure has slowed its growth, while investment in real estate has fallen further.
The Chinese government announced earlier this year plan to boost domestic demand with other subsidies and incentives for equipment upgrades and consumer product trade-ins. The measures are officially expected to generate more than 5 trillion yuan ($704.23 billion) in annual spending on equipment.
Officials told reporters last week that financially, the central government would provide “strong support” for such upgrades.
S&P found that local government fiscal stimulus was generally larger and more effective in wealthier cities, based on data from 2020 to 2022.
“Cities with higher incomes lead because they are less vulnerable to real estate market declines, have a stronger industrial base, and their consumption is flexible,” Xu said in the report. more active during a recession. “Industry, consumption and investment will remain the main growth drivers going forward.”
“Higher-tech sectors will continue to drive China's industrial upgrading and boost long-term economic growth,” Xu said. “That said, overcapacity in some sectors could cause price declines in the near term.”
