Amidst a prolonged, sluggish economic recovery post-Covid, Australian Treasurer Jim Chalmers has hailed China’s prospective stimulus effort as a “really welcome development”, as what it provides “big consequences for our own economy, workers, businesses and investors”.
With the pandemic having caused disruptions and job losses, coupled with falling home prices, Chinese consumer confidence remains low, and the government has failed to provide support to stimulate domestic demand until this point. With official figures for August indicating an increase in urban and youth unemployment (5.3% and 19% respectively), analysts forecast that China will fail to meet its GDP growth target of 5%. Thus, this has prompted recent measures, including a reduction in the amount of reserves that banks are required to keep (stimulating liquidity), reducing interest rates on commercial bank loans (mortgage rates will be cut by about 0.5%) and also lowering down-payment requirements for second home buyers (25% to 15%). Despite this being forecasted to help 50m households and 150m people, there has also been commentary that this will be insufficient to “drive a turnaround in growth unless followed up with greater fiscal support” (Julian Evans-Pritchard, Head of China Economics at Capital Economics). In particular, sentiment towards China’s urban property market besides Beijing and Shanghai is trending lower, ultimately limiting the policy’s effectiveness in the long term.
Ultimately, despite a raft of new policies being developed (i.e. share market stabilisation), the fact remains that China’s anaemic private sector will continue struggling amidst an unclear Chinese business environment. The extent of this is demonstrated in “private firms feeling they don’t have a future, so they are now closing their factories, moving their money out of China and going to Singapore and other countries”. Therefore, with their status as Australia’s largest trading partner, this may foster severe negative implications for the Australian economy too.
Comments