Is China’s new stimulus enough to revive its economy?

In September, China’s central bank announced its most aggressive measures since the pandemic to get its economy back on track after it became clear the country might miss its 5 percent gross domestic product (GDP) growth target for 2024.

The world’s second-largest economy is still struggling from the lingering side-effects of COVID-19 – when China implemented some of the longest and harshest lockdowns – to the collapse of its property sector in 2021, and deeper societal changes like a falling birthrate and ageing population.

Beijing has so far avoided the kind of 4 trillion RMB ($586bn) stimulus it used in 2008 following the global financial crisis, but its latest moves have been met with a positive response from investors. Observers, however, wonder whether it will be enough.

What has China done so far?

China’s recent stimulus measures have primarily targeted its monetary policy, which focuses on banks and money supply rather than “spending its way out” of a downturn.

Among the measures, the People’s Bank of China announced that it would lower interest rates to make borrowing money cheaper; lower mortgage rates for homeowners, benefitting 50 million households; and lower the requirement for how much money banks need to keep on reserve, freeing up 1 trillion RMB ($140bn). It also set aside 200 billion RMB ($28bn) for local government investment projects.

The news was shared in a rare joint media conference featuring three of China’s top economic officials: PBOC Governor Pan Gongsheng, National Financial Regulatory Administration Minister Li Yunze and China Securities Regulatory Commission Chairman Wu Qing.

While Beijing’s communication can often be opaque, observers say they were sending an unusually clear message that they were taking the situation seriously.

How’s it progressing?

Markets rallied to their highest point in two years after the announcement in September, and while they have since fallen off somewhat, there is still some optimism in the air.

“I think what we need to look at from now, rather than this massive rally in the past two weeks, will be whether there are economic fundamental changes. I do feel that people probably will become a little bit more optimistic, but that hasn’t fully been reflected in the consumption side,” said Gary Ng, senior economist for Asia Pacific at Natixis, a French financial services firm.

“For now, I would say more will need to be done. A lot of things have been announced, but it depends on implementation,” he said.

Several media outlets, including Reuters and Bloomberg, have reported, quoting unnamed sources, that Beijing plans to release 2 trillion RMB ($284bn) in sovereign bonds later this year to provide funding to pay down local government debt and boost China’s social safety net.

If the second round of stimulus goes forward, the announcement will not occur until at least the end of October, pending a meeting of the Standing Committee of the National People’s Congress, also known as China’s legislature. The committee’s 175 members approved similar measures last year.

How did it get this bad?

Observers say that while the central bank measures are the right start, they’re not enough to fully revive the economy because China faces other challenges, too.

Chief among them is its property sector, a former engine powering China’s economy and a great source of funds for local government spending. The sector tanked in 2021 and took down several major property developers who have defaulted on $124.5bn of bonds and left millions of unfinished projects in their wake.

Estimates vary from between 20 million homes to a staggering 48 million, based on a Bloomberg analysis of pre-sale data from 2015 to 2024.

The collapse had a major effect on the population, as property is one of the few places people can store their assets. Other issues include high youth unemployment for people ages 16 to 24, which is reportedly at 18.8 percent. Youth unemployment has been such a source of controversy that the government stopped publishing data for several months in 2023, and only resumed doing so once it changed its methodology.

China’s manufacturing industry is another source of problems. While it is known as the world’s factory, China is struggling with overproduction in some sectors like steel and manufacturing, while in others like tech, companies are moving their production to Southeast Asia due to cheaper costs and less geopolitical tension.

Beijing-based economic consultant Xinran Andy Chen told Al Jazeera that China should still be able to hit close to its target of 5 percent GDP growth – at least this year. “I think it’s pretty obvious that Beijing will hit its goal. It rarely misses,” he said. “Through several ways – either through the additional stimulus measures they’re going to announce, or they can just hit around that number and say they’ve hit it.”

How are people reacting?

In the aftermath of both the property collapse and COVID-19, Chinese have also been reluctant to spend their money, so the economy has lost another source of growth. The measure of consumer confidence fell to 86 out of 200 in July, the lowest figure since the height of the pandemic, according to government data.

Nikko Asset Management, a Japanese multinational investment company, said the lack of consumer confidence is the “elephant in the room” when it comes to China’s economy, as it has knock-on effects like deflation and falling prices.

“It is hard to feel optimistic about the future when job security is tenuous, salaries remain stagnant and investors see the value of their real estate and equity holdings depreciate by the day,” the company said in a recent report.

There are some positive signs, however. Chinese spent money during the country’s recent Golden Week holiday, which ran from October 1 to 8. It’s less than in 2019 as many Chinese stayed closer to home or chose more budget-friendly holidays, but still better than in recent years.

“You see more people travelling and more people consuming, but the per capita consumption is still below the pre-COVID levels,” said Chen. “That tells me more people are spending money, but they are spending less per person, so they feel a bit worried about their future income.”