China could boost demand and ease deflation with cash payments, analysts say

Research institutions and observers have suggested demand stimulus in the form of cash payments could prevent potential deflationary spiral

Direct cash injection would encourage businesses to expand and boost activity, but policymakers show no signs of interest

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Observers have called for demand stimulus, possibly in the form of cash payments to households, to prevent deflation and economic slowdown. Photo: AFP

Published: 9:00pm, 6 Feb 2024

A lack of stimulus for demand in China could send prices toppling lower and pile more pressure onto China’s already faltering economy, researchers said this week.

Without official measures to motivate spending, consumers may cut back on purchases, leading merchants to slash prices and earn too little income to expand their business. That cycle could add deflationary pressure and hit the wider economy.

“Without powerful policy interventions, the deflation expectation may become entrenched and start to hurt consumption and investment demands,” the Institute for International Finance said in a research note on Monday. It warned of a “downside risk if the demand-side stimulus is inadequate”.

Chinese officials are expected to target 5 per cent economic growth this year, but the International Monetary Fund has set its forecast for just 4.6 per cent.

The institute, a US-based industry group, pointed to a possible slow recovery for China’s “deep housing crisis”, which combined with a stock market slump “may hit household wealth and consumption harder than expected”.

China’s years-long housing crisis stems from overdevelopment and government curbs on lending.

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Policy responses from Beijing would steer this year’s domestic economic performance, the research note said.

China could boost demand and ease deflation with cash payments, analysts say

Research institutions and observers have suggested demand stimulus in the form of cash payments could prevent potential deflationary spiral Direct cash injection would encourage businesses to expand and boost activity, but policymakers show no signs of interest

Research institutions and observers have suggested demand stimulus in the form of cash payments could prevent potential deflationary spiral

Direct cash injection would encourage businesses to expand and boost activity, but policymakers show no signs of interest