China Needs At Least US$1.4 Trillion Stimulus Package to Revive Economic Growth

China's Urgent Call for a Stimulus Package

China urgently requires a stimulus package of at least 10 trillion yuan (approximately US$1.42 trillion) over the next couple of years, as articulated by Liu Shijin, a prominent figure from the State Council’s Development Research Centre. The country is currently facing concerns about waning domestic demand and a persistent property slump.

Funding the Stimulus

Liu advocates for financing this ambitious stimulus primarily through ultra-long-term special bonds, emphasizing that it should address critical gaps in public services. His remarks at the China Macroeconomy Forum displayed a clear vision for closely aligning this stimulus with necessary demand-side structural reforms, aiming to boost consumption, stabilize growth, and mitigate economic risks.

Focus on Key Areas

• Enhancing basic public services for new citizens, particularly for rural migrant workers
• Improving access to affordable housing, education, healthcare, and social security
• Converting unsold flats into preferential housing

The stagnation in retail sales and the real estate crisis pose major challenges for China to achieve its annual growth target of around 5%. Liu's approach suggests that by fortifying preferential housing, consumer confidence can be strengthened, leading to improved demands in education and healthcare.

Potential in Small and Medium-Sized Towns

Additionally, Liu highlights the untapped growth potential within small and medium-sized towns. These towns are positioned well to absorb China’s rural inflow and are prime for manufacturing and service industries...

The Comparison with Quantitative Easing

In contrast to quantitative easing policies adopted by Western economies, Liu asserts that China must avoid a one-size-fits-all approach. While these policies have often led to global inflation, he argues that China’s emphasis should remain on sustaining a stable economic growth rate.

China's retail sales growth observed a modest improvement of 2.1% year on year, falling below forecasts—marking consumption as a pivotal pillar of economic expansion.