The View | China’s latest stimulus measures still don’t go far enough
Mortgage rate cuts and reserve requirement reductions may provide short-term relief but they are no substitutes for boosting domestic demand
The PBOC also plans to support the acquisition of real estate companies’ lands by allowing policy and commercial banks to grant loans to eligible companies. These initiatives aim to revitalise land stock and ease financial pressures on real estate developers and homeowners as part of efforts to ensure the country hits its 2024 gross domestic product growth target of around 5 per cent. But will these measures have any real impact?
To conceptualise the imbalances in the Chinese economy, we can think of an economy as having four sectors: households, businesses, government and foreign entities. Each of these sectors plays a distinct role in the distribution and utilisation of national income. National income can either be saved and subsequently invested domestically or abroad, or it can be consumed.
The business sector does not directly contribute to consumption; instead, it saves its income, with spending classified as investment. The government sector arguably contributes little to consumption, and in China’s case, foreign entities’ retention of GDP is too small to have a meaningful impact on national consumption or savings. This leaves the household sector as the primary driver of consumption within the economy.