China’s Stimulus Aims to Boost Consumption, Top Official Says
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(Bloomberg) — China’s recent rollout of stimulus is centered around lifting domestic demand and hitting the nation’s annual growth goal, said Vice Finance Minister Liao Min, as investors await a meeting of lawmakers expected to unveil details of Beijing’s crucial fiscal package.
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“The goals are to enhance the strength of macro policies to expand domestic demand and reach this year’s GDP growth target,” Liao told Bloomberg News on Friday in Washington, on the sidelines of the International Monetary Fund and World Bank’s annual meetings. “And in the meantime to coordinate with monetary policy to push for the restructuring of the economy, particularly to boost domestic demand including consumption.”
“The size of this round of policies will be of quite large scale,” he said, reiterating a sentiment previously expressed by Finance Minister Lan Fo’an.
Liao said he made clear to delegates from other nations that any details of China’s fiscal policy will only come after the conclusion of the National People’s Congress Standing Committee meeting, which is scheduled to take place Nov. 4 to Nov. 8. “There’s a legal process to go through for China’s fiscal policy,” he added.
Chinese officials have unleashed their boldest economic stimulus since the pandemic in recent weeks, after a slew of weak economic data put Beijing in danger of missing its about 5% annual expansion target. While that package has included rate cuts, more cash for banks and housing sector support, measures including a push to steady local government debt have been seen as more focused on mitigating risks than stimulating growth.
China’s yearslong property crash has wiped out billions of dollars in household wealth, piling deflationary pressures onto the economy as consumers turn cautious. Liao called the use of ultra-long special sovereign bonds to fund a consumer goods trade-in program this year “unprecedented.”
“To certain degree, it demonstrates that consumption has become an important consideration in China’s fiscal policymaking,” he said.
US Treasury Secretary Janet Yellen this week in Washington criticized the stimulus blitz so far for failing to address the sensitive issue of overcapacity, as weak domestic demand sends a flood of cheap exports abroad. IMF director Kristalina Georgieva also warned China’s annual growth could drop to “way below” 4% in the future without reforms to lift domestic consumption.
Liao’s defense of his nation’s blueprint to revive the economy comes as China’s top lawmakers prepare to hold a highly anticipated huddle that’s expected to rubber stamp a government borrowing bundle. Finance Minister Lan and his deputies earlier this month announced measures including plans to recapitalize major state-owned banks and launch a local debt swap program, without specifying how much would be spent.
Economists have been busy speculating over the scale of the package. Citigroup Inc. expects additional fiscal firepower of as much as some 3 trillion yuan ($421 billion) this year to be evenly spent in addressing revenue shortfall, spurring growth and recapitalizing banks. Goldman Sachs Group Inc. forecasts around 5 trillion yuan over multiple years to swap out hidden local debt.
Lawmakers will assemble to approve any package in the same week of the tight US election, with the final decision likely coming three days after the vote that could redefine America’s relationship with Beijing. Former President Donald Trump is threatening to impose tariffs on China that would decimate trade between the two biggest economies, and could slash the Asian nation’s annual growth rate by half.
Liao was a key member of China’s team of trade-war negotiators facing off against US officials during Trump’s first presidency. A fluent English speaker, he traveled to America as an aide to then Vice Premier Liu He and met Trump in the Oval Office.
Days after Yellen made her criticisms, Liao said Chinese officials briefed their American counterparts “in detail on China’s considerations” behind the recent policies, while US officials shared their thinking on their own fiscal and rate decisions.
The Chinese side also “expressed concerns” over US tariffs and Russia-related sanctions during a bilateral meeting this week, according to a Ministry of Finance statement.
The Department of Treasury confirmed both sides had discussed the stimulus in a Friday statement, without elaborating.
“I also stressed to foreign colleagues at this week’s meetings China’s determination to continue reform and opening up in its pursuit of high-quality development and measures set at the Third Plenum,” Liao added, referring to a twice-a-decade conclave held in July to chart long-term reform.
–With assistance from Viktoria Dendrinou.
(Updates with Ministry of Finance’s statement on US-China meeting.)
