The Chinese government has announced a trillion-yuan boost (about $1.4 billion) to domestic spending, breaking its long-standing limit of a deficit no larger than 3 percent of GDP. That will dig the annual budget hole deeper than it has been in 30 years, according to figures cited by Bloomberg.

The deficit will now rise to 3.8 percent of GDP, analysts calculated.

Breaking the self-imposed budget rule sends “a firm signal from policymakers that they intend to support growth,” Asia economist Peiqian Liu at Fidelity International told Bloomberg, and “a strong sign that the government will not hesitate to expand its balance sheet when needed.”

The new spending is “policymakers’ acknowledgment that the pressure to stabilize growth next year will increase,” analysts at Shenwan Hongyuan Group wrote in note.

The Chinese economy is likely to reach the government’s modest 5-percent growth goal for this year, recent data indicates. Several government economic advisors have called for the same target for 2024.

“The stimulus retains a traditional focus on construction,” Bloomberg noted. Money is earmarked for recovery from recent floods and strengthening infrastructure against natural disasters.

China’s economy is staggering under the rolling collapse of its real estate development and housing sectors; a feeble consumer economy; and falling global demand for its manufactured goods. 

During the first nine months of this year, business investment grew more slowly than at any time in the last three years.

Also, China’s economy has been deflating, meaning businesses have had to lower prices to entice buyers to spend money for their products and services.

Despite those major obstacles to growth, the stimulus amounts to only about 0.8 percent of GDP, not the multiple digits of stimulus that the government used in some past slowdowns.

The influx of cash will nudge GDP growth up by 0.1 percentage points in this year’s fourth quarter and half a percent in 2024, Bloomberg Economics analysts predicted.

In the past, Beijing has juiced the economy by pressuring local governments to borrow or to sell public lands. Due to the unresolved property crash, those options are no longer viable.

This time, “the repayment of principal and interest will be borne by the central government, and will not increase the repayment burden of local governments,” Zhu Zhongming, vice finance minister, told a press briefing on 25 October.

However, local governments are indebted to 76 percent of their GDP while the central government’s ratio is just 21 percent, leaving it room to do more now, some economists have argued.

The stimulus “should ensure the rebound that started in August continues into the new year,” Adam Wolfe, an economist at Absolute Strategy Research, said to Bloomberg.

Beijing stopped short of authorizing direct payments to households to reduce debt and spur consumer spending. Many analysts contend that giving money to individuals would energize the economy more than additional infrastructure spending will.

“Beijing still refuses to consider income transfer to households, which will delay the rebalancing of the Chinese economy,” Houze Song, a fellow at the Paulson Institute, said in a Bloomberg interview.

At least for now, the government also has decided not to tackle the deeper structural reforms that analysts say would cause short-term pain but lay groundwork for long-term stability and growth.

Those measures would include boosting consumers’ incentive and ability to spend; ending the dependence on infrastructure spending; reducing public investment in state-owned businesses; and relying more on free-market mechanisms, among others. 

Lacking those changes, China is headed for a long period of deflation, slow growth, and stagnant living standards, analysts have warned.

TREND FORECAST: Not only did China change and/or destroy its own economy when the launched the COVID War in January 2020 on it Lunar New Year, “The Year of the Rat,” they ramped it up with three years of zero-COVID policy that destroyed the lives and livelihoods of hundreds of millions of Chinese… while destroying much the world’s economies and changing the way of the world. 

From individuals or gangs rampant stealing anything they can in stores, to the escalating homeless crisis to the flood of refugees escaping countries where they can’t afford basic living standards, are being robbed by their government’s corruption and are escaping crime and violence, to the Office Building Bust that will cause the greatest banking crisis in history… the worst has just begun.   

In China, a truly bold approach would be an attempt to confront the structural issues and address record youth unemployment, an aging workforce, and president Xi’s penchant for distrust and heavy-handed regulation of the private sector, among other ills. But do as he wishes, the socioeconomic damage he inflicted on China with his COVID War will continue. 

China’s economy may improve slightly with new infrastructure spending. However, China has relied for too long on public works to offset a weak consumer economy. And again, thanks to its COVID War that they launched, Its major money maker was its export market which has deteriorated. And the deeper the world economy sinks into recession, not only will it prove painful for China, but also for all those companies that sell their products and services to the Chinese. Indeed from luxury items at the top and fast food chains at the bottom, sales across the economic spectrum will decline. 


China’s CSI Composite stock index, which tracks stocks on the Shanghai and Shenzhen markets, dropped 1.3 percent on 27 October to 3,463, the lowest point since 2019, before recovering slightly by day’s end. 

Foreign investors have dumped $23 billion in Chinese stocks since early August, bringing net cash inflows for the year 70 percent below their past peak.

The CSI is the country’s equivalent of the U.S.’s Dow Jones Industrial Average and is down about 15 percent so far this year.

China’s markets rallied early in 2023 as Beijing lifted three years of anti-COVID restrictions. However, the country’s property market debacle, weak consumer spending, and new government restrictions on the finance and tech industries chased investors away from Chinese stocks.

The government has issued a series of policy tweaks to try to patch the economy’s cracks but those measures have so far failed to revive strong growth or adequately reassure investors.

Chinese markets also have suffered from U.S. bans on select high-tech exports and the frosty relationship between Beijing and Washington.

“Global investors need two floors before they get back into China—a floor for the geopolitics and a floor for the Chinese economy,” an unnamed U.S. investment banker based in Asia told the Financial Times. “Only then they can start pricing things up.”

China Petroleum & Chemical Corp., China Railway Construction Corp., and several other state-owned businesses have announced ambitious stock buyback plans to help stabilize equity markets.

TREND FORECAST: The extent to which Chinese equity markets recover will be due to Chinese investors. Offshore investors will need to see not only stability and growth in the country’s stock markets, but also less intrusive policy and regulatory behavior from Beijing—as well as a global economic upturn—before risking capital in China again.


In October, China’s manufacturing sector slipped into contraction, according to the country’s official purchasing managers index (PMI), while activity in services and construction also slowed, the National Bureau of Statistics reported.

The manufacturing PMI dipped from 50.2 in September to 49.5 in October. Readings below 50 indicate that activity contracted. Economists surveyed by Bloomberg had expected the index to remain at 50.2.

The PMI covering construction and services weakened from 51.7 to 50.6. Bloomberg’s poll had found economists expecting activity there to tick up to 52 instead of fall further. The services-specific PMI sagged from 50.9 to 50.1.

Subindexes for new orders in both manufacturing and non-manufacturing also registered below 50, showing that demand is shrinking across the economy.

China’s economy is continuing to sink despite a moderate group of stimulus measures announced by Beijing. 

“China’s post-reopening recovery this year has been challenged by weak consumer confidence, falling export demand and an ongoing property crisis,” Bloomberg noted.

“Given the downside surprise, the authorities will still need to deliver growth supportive policy,” Raymond Yeung, chief economist at the Greater China at Australia & New Zealand Banking Group, said to Bloomberg.

The People’s Bank of China is expected to reduce the amount of cash banks need to hold in reserve so those banks can buy government bonds that will fund a new round of infrastructure spending in an attempt to goose GDP. (See “China Shifts Strategy, Announces Stimulus Spending” in this issue.) 

The bank also could cut various interest rates again; previous cuts produced only slight gains in lending and spending.

TREND FORECAST: Stimulus spending is a step toward solving China’s economic malaise but only one step.

Structural issues, particularly consumers’ tradition of thrift—which was strengthened during three years of draconian zero COVID lockdowns—will get tighter as China and the world economy declines. 

China’s manufacturing economy is unlikely to return to the heights it reached during the COVID War; the world’s economy has slowed and companies and countries are reshoring or “friendshoring” their supply chains.

Therefore, China’s economy cannot grow significantly until the country’s consumers are persuaded that spending is a social necessity as well as a personal pleasure.

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