With President Xi seeking a further five-year term in power at a Communist Party congress late this year, Beijing might finally decide to boost consumer spending.
Perhaps the most worrying aspect of the slowdown now clearly under way in the world’s second-largest economy is that China’s leadership is rigidly sticking to its old playbook, even though this approach is unlikely to do much to boost flagging growth.
Chinese firms, fearing they could face repeated lockdowns that would force them to halt production, are reluctant to borrow to expand their factories.Especially at a time when their profit margins are being squeezed by the surge in commodity prices, and they’re feeling a chill fromAs their economies recover from the pandemic, Western consumers are shifting their consumption patterns – spending less on manufactured goods, and more on services, such as travel, entertainment and dining out.
Meanwhile, many Chinese property developers remain under intense financial strain. They’ve largely been locked out of global capital markets for new fund raisings, and their existing corporate bonds are trading, on average, at less than 50 cents on the dollar. Last week, China’s premier Li Keqiang instructed state-owned banks to provide 800 billion yuan in funding for infrastructure funding.
Instead, they may have decided that, provided the economy doesn’t brake too sharply, there’s no need for significant stimulus. After all, a shrinking labour force has reduced the old linkage between growth and employment.
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