China wanted to calm the market and it did so. The recent economic recovery measures announced by the Politburo led Goldman Sachs to revise its growth projections for this year and next year by two tenths on Tuesday. They expect GDP growth of 4.9% – close to the government’s 5% target – compared to their previous October 13 forecast of 4.7%. By 2025, they increased the expansion rate of the Asian giant’s economy from 4.3% to 4.7%.
Last Saturday, October 12, the Ministry of Finance announced that it would use 2.3 trillion yuan (about 300 billion euros) of special bond funds from local governments during the fourth quarter. In addition, they also plan to issue “special state bonds” to improve the “risk resistance and lending capabilities” of state banks, with the aim of “better serving the development of the real economy “.
Goldman Sachs believes that these stimulus measures “clearly indicate that policymakers have given a turning point in cyclical political management and increased their focus on the economy. ” Furthermore, they add that “with national data and political developments, as well as the upcoming US elections, additional surprises are possible that will warrant further adjustments (in either direction) to our forecasts in the coming weeks.”
In this sense, Goldman predicts that the Chinese authorities will “probably” approve a further extension of the local government debt plan to 5,000 billion yuan (approximately 645,000 euros) at the next meeting of the Standing Committee of the People’s Congress national.
Concerning the overdraft of municipal public accounts, the Council of State has already presented a report in which it urges local authorities to apply strict budgetary disciplinestrengthen budgetary restrictions and strictly prohibit investment in projects through illegal debts contracted by companies and state institutions.
At the beginning of the summer, the first results of these “austerity” policies were already visible. The famous total hidden debt was estimated at 32.2 trillion yuan (around 4 billion euros), compared to nearly 70 billion yuan recorded at the start of the year.
This correction is not sufficient, because the mountain of municipal debts is enormous. Stimulus measures are therefore more than necessary to resolve the problem.
Goldman economists also said that China’s decision to pre-approve 200,000 million yuan (26 billion euros) of projects next year by the end of the month could help support growth.
However, the entity’s experts say that their vision of Chinese growth has not changed. They discuss several structural issues such as demographic deterioration, the multi-year trend toward deleveraging, and the drive to shrink the global supply chain. “The latest round of easing is unlikely to reverse these difficulties. »
Real estate market
Although there is some improvement in terms of home sales. With a less pronounced drop in Golden Week, from 50% to 27%, China faces the enormous challenge of reviving a reviled real estate sector that is generating a huge crisis that is holding back growth.
Vice Minister of Finance Lao Min assured at the press conference on Saturday that these special bonds they will issue will be for local governments to purchase land for urban development purposes. They hope to revitalize a struggling real estate market. “This will help reduce pressure on local authorities and property companies in terms of debt and liquidity,” declared the manager.
This is in addition to the recovery plan activated in the middle of this year, of 300 billion yuan in loans (around 40 billion euros) for municipalities to buy empty housing and transform it into social and affordable housing. A measure that first-tier cities like Beijing, Shanghai and Shenzhen are already starting to adopt.
However, several experts take a dim view of this recovery plan, because there is a “notable absence” of consumer aid, as described by Julian Evans-Pritchard, director of the Chinese economy section at Capital Economics. And this is important because one of the structural problems facing China that is holding back its growth is the caution of its consumers in the face of political uncertainty, which leaves domestic demand flat and inflation quite stagnant.
It is true that these economic stimulus measures have calmed the waters and, as happened with Goldman, growth revisions are upward by many analysts. The announcement of the reduction in interest rates for purchases, as well as the incentives aimed at facilitating the acquisition of the first home, are welcomed with open arms by the market, even if experts believe that some more something more.
