China urged to spend up to $1.4tn to battle deflation
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Loading... - Youchen Tai
- 11 Sep 2024
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China is facing growing concerns over deflationary pressures and needs to inject up to RMB 10 trillion ($1.4 trillion) over two years to reflate its economy, according to investment bank economists. This massive stimulus package would be up to 2.5 times larger than the one implemented after the 2008 financial crisis. The primary target for the funds would be social welfare spending, focusing on direct assistance to households, particularly China’s 250 million migrant workers, who are under-covered by existing pension and healthcare systems. Additionally, the stimulus would aim to stabilize China's ailing property market and support local governments.
Economists argue that addressing deflation quickly is critical, as delays would lead to more entrenched deflationary pressures that would become costlier to dispel. Stimulus measures would push nominal growth above 5%, while failure to act could see growth stagnate at around 4% .
Beijing has already taken steps to combat weak consumer confidence by pumping loans into the industrial sector, but this has worsened the deflationary cycle, with oversupply of consumer goods and low demand. China’s producer price index has been in deflation for 23 consecutive months, and consumer prices remain flat, save for volatile food costs.
Experts at Morgan Stanley and Goldman Sachs have offered varying estimates for the needed stimulus, with suggestions ranging from RMB 3 trillion to RMB 10 trillion, depending on the depth of interventions aimed at the property market and social welfare .
