Pressure grows on China for big policy moves to fix economy

As the annual meeting of China’s parliament approaches next month, its leaders are facing the greatest pressure in almost a decade to take bold policy decisions that safeguard the economy’s long-term growth potential. The start of the year saw Chinese stocks tumbling to five-year lows on growth concerns and deflation deepening to levels unseen since the global financial crisis, prompting comparisons with the 2015 turmoil that forced policymakers into action. “The last time the Chinese leadership faced this kind of pressure was in 2015,” said Tommy Wu, a senior China economist at Commerzbank, who added, “2024 is a crucial year for China to stabilize the economy. “However, the current situation is a lot more complicated.” China overcame the 2015 crisis by devaluing the yuan and tightening its capital account to prevent outflows, while pouring resources into property and infrastructure, and slashing interest rates by more than 100 basis points. But that policy ammunition is now spent, bent or broken, limiting its options to fix a stuttering economy and find a way out of what threatens to become a self-feeding downward spiral in consumer and investor confidence and economic growth. The property market has been in free fall since 2021 because of a series of defaults among developers after years of overleveraged, bad investments. Infrastructure spending is difficult to sustain because of high levels of local government debt. China overcame the 2015 crisis by devaluing the yuan and tightening its capital account to prevent outflows, while pouring resources into property and infrastructure, and slashing interest rates by more than 100 basis points. But that policy ammunition is now spent, bent or broken, limiting its options to fix a stuttering economy and find a way out of what threatens to become a self-feeding downward spiral in consumer and investor confidence and economic growth. The property market has been in free fall since 2021