There Chinain a clear phase of economic slowdown, promises new stimuli to support the economy and revitalize the real estate market which has been in crisis for some time. In addition to measures recently launched by the central bankthe Chinese Minister of Economy and Finance announced on Saturday the arrival of new aid to the economy, also confirming the possibility of extend the fiscal deficit. Meanwhile, the Chinese economy continues to show clear signs of recession, confirming a trend towards price deflation.
Beijing confirms the arrival of new stimuli
The Minister of Financelast Saturday, held a press conference, in which he maintained a proactive tone and of support to the economy, announcing that the Beijing government is ready to “increase the fiscal deficit” to provide greater stimulus to the banking and real estate sectors.
As happened previously no details were provided on how much the deficit could increase and therefore on the amount of aid offered, but the Ministry of Finance stated that the priority objective is the stabilization of the real estate market and the resolution of local public debt problems. For this reason it is not excluded the issuing of special bonds to support the recapitalization of banks and real estate stabilization and to encourage the easing of the tax burden on local administrations
According to the experts at ING it might take “more time” to glean more details on the promised aid and, in particular, it may be necessary to wait for the Chinese People’s Party Congress at the end of October to have more details in this regard.
China in deflation
The latest data on consumer prices in China they confirm one deflation scenariotypical of a slowing economy, which requires greater monetary and fiscal stimuli.
According to the National Bureau of Statistics, inflation in September was lower than expected, recording a modest increase of 0.4%slowing compared to +0.6% in August and below analysts’ expectations (consensus +0.6%). Core inflationwhich excludes the volatility of food and fuel prices, has stabilized at 0.1%down from 0.3% in August, suggesting rising deflationary pressures.
Even i producer prices continue to show clear signs of deflation, falling at the fastest pace in the last six months and recording a 2.8% drop on an annual basis, compared to the 1.8% drop in the previous month and the 2.5% drop expected by analysts.
Excessive investment and weak demand have pushed down prices and forced companies to reduce wages or lay off workers to cut costs, further sinking consumer confidence. A scenario that confirms the difficulties of the Chinese economy and the need for greater monetary and fiscal stimulus.
The central bank alone is not enough
In recent weeks the Chinese authorities have intensified efforts to stimulate demand and help achieve an economic growth target of around 5% this year, although some analysts say the measures may offer only temporary relief and that stronger measures will soon be needed otherwise the weakness could extend into next year.
At the end of September central bank he threw more aggressive support measuresincluding measures to bring the real estate sector out of a serious multi-year crisis through cuts in mortgage rates. However, the central bank alone is not enough and requires Beijing to also prepare fiscal measures and solve structural issues more deep-rooted, such as industrial overcapacity and the slowdown in consumption.
