Recently, Beijing has introduced a series of stimulus measures in response to growing concerns about China’s economy.
The central bank has implemented various measures, such as cutting lending rates, reducing cash reserve requirements at banks, and providing additional liquidity to the stock market. Officials have also indicated support for local government debts and the struggling property market.
Despite these efforts, there has been no concrete plan for a significant fiscal stimulus to boost consumer spending and demand. Economists were disappointed by the finance ministry’s recent briefing, which hinted at the potential for more government spending without providing specific details.
Unlike the U.S., China has been hesitant to offer direct financial aid to consumers, relying instead on industrial production and exports to drive economic growth. This reliance on production and investment over consumption has raised concerns about potential deflation risks.
Chinese financial systems are primarily geared towards supporting the supply side of the economy, with credit directed towards infrastructure, property, and manufacturing. This has led to increased output but also intensified price competition among companies.
Households in China have experienced slow income growth and economic uncertainty, leading to reluctance to spend. The country’s manufacturing sector is highly competitive, driven in part by weak household income.
Experts have warned about industrial overcapacity in China, with the economy producing more goods than can be sustained by domestic or foreign markets. This excess production risks creating a cycle of falling prices, insolvency, and job losses.
The flood of cheap Chinese exports has disrupted global markets and contributed to the imposition of tariffs. The domestic market is characterized by overproduction and intense price competition, which could lead to deflation.
In reality, major e-commerce platforms in China compete fiercely to sell similar products, exacerbating the problem of oversupply and price competition in the market.
