Yu Yongding

Opinion | China must still bring out the big guns to revitalise its economy

PBOC’s moves are not enough, given the lacklustre economic performance. Beijing should announce large-scale stimulus as soon as possible

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After a slew of measures from China’s central bank, the ball is in the finance ministry’s court. Photo: Reuters

Yu Yongding

Published: 2:30pm, 3 Oct 2024

In January, shortly before the Chinese government set its annual growth target at 5 per cent, I estimated that if net exports stopped declining, achieving 5 per cent growth would require boosting investment growth to 5.3 per cent, given a slowdown in consumption this year.

To offset the expected sharp decline in real-estate investment, my calculations suggested that infrastructure investment would need to “increase significantly” – a goal that seemed within reach at the time.

But the latest data shows that China’s annual consumption growth, measured by retail sales of consumer goods, was just 3.4 per cent in January-August. Spending on fixed assets, a proxy of investment growth, was similarly weak. Although net exports increased by roughly 8 per cent, they account for just 2.5 per cent of gross domestic product, rendering their contribution negligible.

The Chinese economy has historically experienced higher GDP growth in the final quarter of the year, and the real growth rates of the aggregates may be higher because of negative producer price index (PPI) growth. But it is clear that without significant government intervention, China will struggle to reach its 5 per cent growth target for 2024.

China’s GDP growth has steadily declined over the past decade, falling from 10.6 per cent in 2010 to 6.1 per cent in 2019 and 5.2 per cent last year. China’s PPI has been in negative territory for much of this period, while the consumer price index has increased by less than 2 per cent on average since 2012, recently falling below 1 per cent.

It is fair to say China’s “economic miracle” of maintaining an average annual growth rate of 10 per cent is over. Still, I believe that with wise macroeconomic policy, market-oriented reforms and a genuine commitment to opening up, the economy should be able to maintain a solid growth rate of 5-6 per cent for the foreseeable future.