Even as the Communist Party of China (CCP) recently celebrated the 75th edition of the country’s foundation day, the current situation of the country is far from what is being portrayed by the CCP, and the country continues to struggle in gaining economic momentum.
Economic Challenges
China currently faces several problems, including the country’s youth struggling in the job market, white-collared employees suffering from pay cuts and layoffs, entrepreneurs struggling to keep businesses afloat, middle-class families witnessing wealth slashed by crumbling housing prices, and its rich race to move money out of the country.
Last week, after witnessing months of grim economic data, Chinese President Xi Jinping gave nod to a stimulus package in a move to gather faith in the Chinese economy. As a result, the country’s central bank unveiled its measures to counter falling prices. It included freeing the commercial banks to lend more money, making it cheaper for households and companies to borrow loans.
The Mood Leading Up to the Anniversary
In the months leading up to the 75th anniversary of the founding of the People’s Republic on Tuesday, the mood was encapsulated by a new buzz phrase: “the garbage time of history.”
Xu Tianchen, a senior economist at the Economist Intelligence Unit, says that the “rare, simultaneous rollout of so many measures underscored the urgency for policymakers to prop up the economy.”
Long-Term Solutions Needed
Additionally, economists say reversing China’s economic downturn will require much more work. “Stimulating the stock market doesn’t really do much for the real economy in China. Very few people invest in the stock market compared to other major markets,” said Logan Wright, director of China markets research at Rhodium Group.
Chinese households have suffered major losses in wealth due to a downfall in the housing market, totaling an estimated USD 18 trillion. This was reported earlier this month by economists at a British multinational universal bank. “It’s as if each three-person household in China has lost around USD 60,000, an amount that is almost five times China’s per capita gross domestic product.”
In its statement, Logan Wright said that the stimulus package “makes the leadership look more reactive, more responsive to the downturn in the economy. And that is what’s generated some of the more positive sentiment (last) week. But nothing really changes in terms of the structural outlook.”
China’s decades-long investment-led growth has reached “a dead end,” and fundamental overhauls of its fiscal system—including a redistribution of income and greater transfers to households—are needed to rebalance the economy toward a more sustainable consumption-led growth model, Wright said.
(Except for the headline, this story has not been edited by Newsx staff and is published from a syndicated feed.)
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