China

China recently announced an extensive financial package of 10 trillion yuan (1.4 trillion dollars) over the next five years to tackle the “hidden debts” of local governments. This debt, which has accumulated over decades as a result of major infrastructure and construction projects, is increasingly weighing on the country’s financial stability. By supporting local authorities, the central government is creating space for new investment in key areas, helping to ease budgetary pressures at a local level. The program is expected to gradually reduce the debt burden and provide long-term stability for inflation. Despite the largest plan to date, this disappointed investors who had hoped for more support for declining household consumption.

The Focus on fiscal and monetary policy measures

In addition to this debt reduction plan, China is emphasizing a strategic fiscal and monetary policy. Since September, newly introduced stimulus measures have supported the stock markets. President Xi Jinping and the People’s Bank of China (PBOC) are focusing on targeted interest rate cuts and financial support to stabilize the real estate market and other sectors hit hard by the pandemic.

With the increasing demand for extensive state support, the government remains cautious and is trying to find a balance between fiscal expansion and budgetary discipline – particularly with regard to potential trade conflicts with the US.

China’s transition to high-value growth

China’s long-term economic policy envisages a shift from investment-driven growth to “high-value” development, supported by high-tech industries and clean energy. China already dominates the production of solar panels, electric vehicles and lithium-ion batteries, with export figures in these sectors rising significantly. However, this progress is facing increasing resistance, particularly from the West. Recently, the EU increased tariffs on Chinese electric vehicles to up to 45%, indicating caution towards China’s growing technological power and market presence. Nevertheless, China remains committed to strengthening its position as a leading technology and export nation while expanding into new markets.

A balancing act with high stakes However, China’s recovery measures are slower than initially forecast and the International Monetary Fund (IMF) has lowered its growth forecast for 2024 to 4.8%. In this atmosphere of continued uncertainty, it is crucial for China to ensure stability while pushing ahead with long-term structural reforms. These reforms could be the key to gearing the Chinese economy towards sustainable growth and establishing itself as a technological market leader.

Only time will tell how these investments and reforms will affect China’s economic landscape and its position in the global economy.

Over the years, China’s economic growth has steadily declined from 10% to the current growth target of 5%. The latest measures are intended to help achieve this growth. It is expected that additional stimulus could follow if Trump introduces tariffs that would harm the Chinese economy. The government is primarily supporting itself and not private consumption. This disappointed the financial markets and led to a decline in Chinese and luxury stocks.

Due to its positive trade surplus, China has invested its incoming US dollars in US government bonds over the years. These were gradually sold as a form of economic retaliation.

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