Peking is in a dilemma. The growth figures of yesteryear are history, instead the mood is bad and the uncertainty high. In the corona pandemic, the Chinese government lost a lot of trust in international companies, and after the tough zero-Covid policy and the sudden reversal at the end of last year, consumers still doubt that things will pick up again quickly.
The country has slipped into deflation due to weak demand. At the same time, the government wants to demonstrate its strength to the outside world. She is trying to counter the discussions in the West, where they want to reduce the China risk.
So far, the economic policy measures have remained quite cautious. In terms of monetary policy, the central bank reacted a few weeks ago with a slight reduction in the most important interest rates, and the new head of the central bank has announced further steps. There are similar announcements from other departments. So far, however, little has happened.
Real estate sector becomes a problem child
The packages announced so far are fiscally quite cheap. This could be related to the fact that the scope of many provincial governments is limited. The zero-Covid policy has hit the finances badly, and for a long time a large part of the income came from the real estate industry, which has now become the long-term problem child of the Chinese economy. Many provincial governments are heavily indebted. Demand-side options seem limited.
That leaves the supply side: after years in which the government has extended control over the economy and has increasingly regulated individual sectors such as technology, liberalization would be necessary here, not least to regain business confidence. While there have been some hints in that direction, it seems unlikely that Beijing will make such a fundamental, ideologically charged shift.
The options are severely limited. Instead, the government communicates small measures very offensively and tries to turn the negative reporting around. It is unlikely that this will be enough.
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