According to S&P Global Ratings, China’s fiscal stimulus measures may be losing steam, serving primarily as a temporary stopgap while the government focuses on industrial and consumer policies.
Measuring Fiscal Stimulus
Senior analyst Yunbang Xu analyzed government spending to gauge the impact of fiscal stimulus. His findings suggest that the effectiveness of these measures is waning.
“We view fiscal stimulus as a buy-time strategy that could yield long-term benefits if projects prioritize reviving consumption or boosting industrial value-add,” said Xu.
Growth Ambitions and Fiscal Constraints
Despite the dampened effectiveness, China aims to achieve GDP growth of around 5% this year, a goal many analysts question given the moderate stimulus levels. Government officials have emphasized the need for stronger macroeconomic policies and coordinated efforts between fiscal, monetary, and industrial initiatives.
However, local governments face constraints due to varying debt levels. The S&P report reveals that public debt as a percentage of GDP ranges from 20% in affluent Shenzhen to 140% in the lower-income city of Bazhong.
Focus Shifting to Long-term Growth
Recognizing the limitations of fiscal stimulus, S&P’s Xu predicts that local authorities will pivot towards reducing bureaucracy and fostering business-friendly environments to support sustained growth.
“Investment becomes less impactful amidst the sluggish property sector,” said Xu.
Investment Trends
Recent data shows an increase in fixed asset investment, primarily driven by manufacturing, while investments in infrastructure and real estate have slowed. Meanwhile, the government has initiated measures to boost domestic demand through subsidies for equipment upgrades and consumer product replacements.
Regional Disparities in Stimulus Effectiveness
S&P’s analysis from 2020 to 2022 reveals that fiscal stimulus has generally been more beneficial in wealthier cities, characterized by:
- Lower vulnerability to property market downturns
- Stronger industrial foundations
- More resilient consumer spending
Drivers of Future Growth
Industry, consumption, and investment remain the primary drivers of economic growth, with Xu emphasizing the role of advanced technological sectors.
“Higher-tech industries will continue to spearhead China’s industrial upgrade and long-term economic growth,” said Xu. “However, overcapacity in certain sectors may lead to price pressures in the short term.”
As China navigates a changing economic landscape, the government’s focus on industrial policy and long-term growth strategies should provide insights into the country’s path towards a sustainable future.
