ALBAWABA – In light of mounting concerns about China’s sluggish recovery and growth outlook, the nation has issued multiple initiatives to invigorate its various flagging sectors and refine its business landscape.
Notably, China’s manufacturing sector is struggling with weak demand both domestically and overseas, with factory activity having slipped below the contraction threshold and the service sector slipping still.
Only recently has the Chinese manufacturing sector begun to show marginal signs of recovery, with the manufacturing purchasing managers’ index rising in August for the first time in months.
Factory activity is edging closer to the contraction threshold as more stimulus comes in to stimulate China's sluggish recovery - Shutterstock
Numerous small measures were introduced over the past several months, as part of what could be a comprehensive but cautious attempt to speed up China’s sluggish recovery.
1 Cutting interest Rates
The central bank slashed interest rates by the most in three years, with August witnessing the People’s Bank of China trimming its main policy interest rate by 15 basis points. Notably, this is the second rate cut so far in 2023.
Nonetheless, major Chinese banks did not cut their benchmark five-year lending rate, which is the main gauge for guiding mortgage rates. These banks, confronted with pressured profit margins, are struggling with reducing their deposit rates for a third time in a year, sources informed Bloomberg.
2 Slashing Stamp Duty on Stock
Three days ago, Chinese regulators slashed stamp duty on stock trades by half. This is the first such measure since 2008 and is a clear effort to bolster the equity market amid deepening sell-offs.
China’s securities watchdog also pledged to slow the pace of initial public offerings and restrict the frequency and size of refinancing for some poorly performing companies, Bloomberg reported.
3 Boosting Property Markets
Interestingly, the largest banks are getting set to curtail interest rates on an enormous $5.3 trillion sum of existing mortgages, in a move that is similar to a previous measure enacted in early 2009.
Further measures are under consideration, to allow individuals with past mortgages to apply as first-time homebuyers in primary cities. Such individuals, especially those with fully repaid mortgages are barred from benefiting from the perks that come with being a first-time homebuyer.
However, Bloomberg explained that the adoption of any such measures would be at the discretion of local authorities, e.g. municipalities.
4 Boosting Consumer Spending
China has enacted multiple measures in an effort to stimulate household spending. On July 18, 13 government departments laid out strategies to amplify household spending on a vast array of items, ranging from electric appliances to furniture.
Declining local consumption is one of the main reasons behind China's sluggish recovery - Shutterstock
To further propel the consumer goods industry, three government agencies, on July 28, chalked out a plan focusing on bolstering the production of small consumer goods. Notably, this light industry sector accounts for a quarter of China’s exports.
5 Private business initiatives
The government has issued a string of statements since July pledging to aid businesses in accessing more financing, to encourage them to invest more robustly.
The National Development and Reform Commission (NDRC), on August 10, announced enhancements to the monitoring mechanisms and pledged a clamp down on government malpractices.
Also, on July 24, it presented a plan encouraging private entities to channel investments into pivotal sectors like clean energy, modern agricultural facilities, and advanced manufacturing.
More so, local governments have submitted more than 2,900 projects, worth a total of $445 billion, that businesses can invest in. The NDRC will also seek to finance the projects through bank loans and real estate investment trust products.
6 Focus on Cars
In a move to invigorate the automobile sector, the NDRC introduced a 10-step blueprint on July 21. The plan aims to amplify car purchases, especially those of new-energy vehicles, emphasizing incentives such as reduced electric-vehicle charging costs and extended tax breaks.
The government is attempting to stimulate demand for home-made electric vehicles to boost China's sluggish recovery - Shutterstock
Additionally, In June, the Ministry of Commerce launched a six-month campaign to boost car purchases and drive electric vehicle adoption in rural areas, Bloomberg reported.
7 Technology and Data Security
China’s internet regulatory body convened with executives from global giants like Walmart Inc. and PayPal Inc. in August, to discuss maneuver through Beijing’s newly implemented data-security regulations. This outreach aims to pacify multinational corporations that are apprehensive about operating in China, given the recent regulatory overhauls.
Also, on July 13, the internet regulator released 24 guidelines for ChatGPT-style services, loosening some restrictions it proposed several months previously.
8 Shielding the Yuan
In a bid to stave off the yuan's depreciation, the central bank has been assertively bolstering its defense of the currency. This was achieved through setting robust daily fixings and increasing funding expenses in the offshore market, a move that comes on the heels of a key July gathering of the Communist Party's top decision-making body.
The government and state-owned banks have endeavoured greatly to protect the Yuan in the midst of China's sluggish recovery - Shutterstock
Concerns over China’s sluggish recovery dampen consumer and business Sentiment
While these economic adjustments have been substantial, their capability to invigorate business and consumer sentiment remains uncertain.
The overarching sentiment is still subdued, attributed to prolonged Covid restrictions, a dwindling property market, diminishing global demand, and escalating unemployment, according to Bloomberg.
Given this comprehensive suite of measures, it's evident that China is earnestly striving to buttress its economy. Whether these strategies will speed up China’s sluggish recovery and usher in the anticipated economic rejuvenation remains to be seen.
