Cover Story: China Tries New Tack to Spur Economic Growth Through Stimulus Effort

China has launched a series of new fiscal stimulus policies aimed at overcoming economic challenges and ensuring sustainable growth. These "incremental policies," introduced from September 24, seek to boost domestic demand, stabilize stock markets, and foster economic stability by targeting five key areas: counter-cyclical support, enhancing domestic demand, assisting struggling businesses, stabilizing the property market, and revitalizing equity markets [para. 1][para. 4]. The scale of the new stimulus is estimated by economists, including Zhang Jun, to potentially exceed 5 trillion yuan ($702 billion), although some remain cautious about the impact [para. 2].

Financial markets reacted positively, with the benchmark CSI 300 Index experiencing significant gains. This optimism was further bolstered by central bank actions, such as cutting reserve ratios and injecting funds for share buybacks [para. 3]. The broader strategy marks a pivot from infrastructure-led growth to structural reforms, with a renewed focus on sustainable development [para. 7].

Significant elements of the strategy include issuing special government bonds to support large banks and converting unsold properties into affordable housing. Finance Minister Lan Foan emphasized that larger deficits and long-term bonds are possible, stirring speculation about the fiscal expansion's total scale [para. 5]. The government aims to infuse capital into state-owned banks to stabilize operations and enhance their lending capacity, marking the first capital injection of its kind since 1998 [para. 25].

Addressing local government debt is a crucial part of the new policies. The Chinese government plans to raise the debt quota, allowing local governments to manage hidden borrowings more freely. This departure from earlier conservative strategies aims to alleviate fiscal pressure due to falling tax revenues and decreasing land sales, which have constrained funding for public services and infrastructure. The debt swap is projected to surpass 2.2 trillion yuan and targets hidden debts [para. 12][para. 14][para. 16].

The real estate sector, which has been a drag on China’s economy, also sees targeted support to revive momentum. Measures include lifting purchase restrictions, reducing down payment requirements, and developing affordable housing through urban village renovations. Over 3.96 million new affordable housing units are targeted by the end of 2024, supported by financial institution commitments and special-purpose bonds (SPBs) [para. 19][para. 21]. State-owned enterprises are also secured funding to transform unsold homes into affordable housing units, though the inventory clearance could require up to 2 trillion yuan [para. 23].

These policies reflect a structural shift rather than traditional stimulus methods, aiming for long-term economic stability and reforms to foster an environment more conducive to private business growth. Steps have been taken to alleviate regulatory burdens, inspire entrepreneurship, and improve conditions for rural migrants, aligning policy with market needs [para. 29][para. 32]. Proposed legal frameworks support fair competition and aim to enhance urbanization efforts to boost investment and consumption [para. 34].

Ultimately, the comprehensive policy package emphasizes restoring market confidence by setting reforms to mirror those from 1998 to 2002, focusing on short-term stabilization, medium-term structural resolutions, and long-term developmental strategies [para. 38].