Wang Xiangwei

Opinion | China’s stimulus will fall short without private-sector confidence

While short-term stimulus will help, Beijing must directly address the fears of businesses and households to get them spending again

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Wang Xiangwei

Published: 5:30am, 7 Oct 2024

“Our money is running out.” That is the constant refrain I have heard from mainlanders since the end of 2022, when China suddenly lifted the zero-Covid restrictions which had hit the economy hard.

More than a million restaurants have reportedly shut down across the country in the first half of this year, close to the total for the whole of last year as consumers scaled back their spending. Retail sales rose only 2.1 per cent year on year in August despite the summer travel peak, down from a rise of 2.7 per cent in July.

Pessimistic sentiment among businesses is widespread. Industrial output grew 4.5 per cent in August, slowing from 5.1 per cent in July, while industrial profits suffered the biggest slump this year, plunging 17.8 per cent.

Local governments, which largely rely on shrinking land sales for revenues, have now resorted to arbitrary fines on businesses. Non-tax revenues nationwide surged by 12 per cent in the first seven months this year.

At first glance, these episodes combine to paint a picture of gloom and doom, but that is just half the story. According to government data, household deposits rose to a record 146.3 trillion yuan (US$20.8 trillion) at the end of June. That was bigger than the market capitalisation of the mainland stock market of 73 trillion yuan and China’s gross domestic product of 126 trillion yuan.

The real issue is not a lack of money but a lack of confidence to spend the money. More importantly, people have been perplexed by the total lack of clarity over the thinking of China’s leadership on how to move forward with the world’s second-largest economy.