Welcome to Extreme Investor Network, where we provide you with unique insights and analysis on the latest financial trends and developments. Today, we take a deep dive into China’s fiscal stimulus efforts and how they are impacting the economy.
According to a report by S&P Global Ratings, China’s fiscal stimulus is losing its effectiveness and is being used as a strategy to buy time for industrial and consumption policies. Analysts have noted that while fiscal stimulus can provide short-term benefits, its long-term impact depends on whether projects focus on reviving consumption or industrial upgrades that increase value-add.
Despite setting a target of around 5% GDP growth this year, China faces challenges due to high debt levels that limit the amount of fiscal stimulus local governments can undertake. Whether in high-income cities like Shenzhen or low-income regions like Bazhong, public debt as a share of GDP varies significantly, impacting the effectiveness of stimulus measures.
Looking ahead, S&P expects local governments to shift their focus towards reducing red tape and improving business environments to support long-term growth and living standards. With investment becoming less effective amid a slowdown in the property sector, officials are exploring measures to bolster domestic demand through subsidies and incentives for equipment upgrades and consumer trade-ins.
Data from 2020 to 2022 shows that local governments’ fiscal stimulus has been more significant and effective in wealthier cities, as they are less vulnerable to property market declines and have stronger industrial bases. Higher-income cities are expected to continue driving growth through industry, consumption, and investment, with a focus on higher-tech sectors to lead China’s industrial upgrade and long-term economic growth.
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