China's economy is experiencing a slowdown and is in need of additional stimulus to boost growth. Here's how the country plans to revitalize its economy.

• The government's promised support for China's slowing economy has not yet been implemented.
• In the past two weeks, senior economic and finance officials have informed reporters that plans for fiscal support are underway, and the issuance of ultra-long bonds to stimulate spending will surpass last year's amount.
• This year, the stimulus will start to have an effect, but it may take some time to notice a substantial impact, according to Mi Yang, head of research for north China at JLL, who spoke to reporters in Beijing last week.

Despite government promises, China's economy has not yet experienced the turnaround investors have been anticipating.

Since late September, policymakers have cut interest rates and announced stimulus plans, but details on fiscal support are unlikely to be revealed until the annual parliamentary meeting in March. Official GDP figures for 2024 will be released on Friday.

The Chinese government's economic stimulus measures are not sufficient to overcome the obstacles to economic growth, according to BlackRock Investment Institute. Despite being moderately invested in Chinese stocks, the firm is cautious about the long-term prospects and is prepared to purchase more if circumstances change.

The drop in domestic demand and concerns about deflation are becoming increasingly urgent, as consumer prices barely rose in 2024, up by just 0.5% after excluding volatile food and energy prices. This is the slowest rise in at least 10 years, according to records available on the Wind Information database.

Beijing city mayor Yin Yong stated in an official annual report on Tuesday that consumer spending remains weak, foreign investment is declining, and some industries are facing growth pressure.

The capital city aims to achieve 2% consumer price inflation in 2025 and boost tech development. Although the nationwide economic goals have not been released yet, senior economic and finance officials have stated that fiscal support is being planned, and the issuance of ultra-long bonds to stimulate consumption will surpass last year's amount.

JLL's head of research for north China, Mi Yang, stated in Beijing last week that China's announced stimulus will start to have an effect this year, but it may take time to see a substantial impact.

The commercial property market will experience pressure this year, with prices possibly accelerating their decline before recovering, according to him.

According to JLL, rents for high-end offices in Beijing, known as Grade A, decreased by 16% in 2024 and are predicted to fall by approximately 15% this year, with some rentals reaching levels similar to those seen in 2008 or 2009.

In 2024, new shopping centers opened in Beijing with average occupancy rates of 72%. However, JLL said that previously, such malls would not have been opened if the rate was below 75% or much closer to 100%. Despite this, within a year, the new malls have seen occupancy rates reach 90%, the consultancy said.

Home appliances

Unlike the U.S. during the Covid-19 pandemic, China has not given out cash to consumers. Instead, the Chinese government in late July announced 150 billion yuan ($20.46 billion) in ultra-long bonds for trade-in subsidies and another 150 billion yuan for equipment upgrades.

This year's trade-in program in China has received 81 billion yuan, according to officials. The program covers a wider range of items, including home appliances, electric cars, and smartphones priced at 6,000 yuan or less, with an up to 15% discount.

Premium phone buyers tend to upgrade and recycle their devices more frequently than those on the lower end of the market, according to Rex Chen, CFO of ATRenew, which operates stores for processing secondhand goods.

On Monday, CNBC reported that Chen anticipates the trade-in subsidies program will increase eligible product recycling transaction volumes on the platform by at least 10 percentage points, surpassing the 25% growth recorded in 2024. Additionally, Chen expects the government to implement a similar trade-in policy in the coming years.

Whether a sustained recovery in consumer demand can be achieved solely through a trade-in program is unclear.

Ting Lu, Nomura's Chief China Economist, stated in a report on Tuesday that he anticipates the sales increase to diminish in the second half of this year, and that sluggish new home sales will curb demand for home appliances.

Real estate

The real estate and construction sectors contributed more than a quarter of China's economy until 2020 when the central authorities took measures to reduce developers' debt levels. This had a ripple effect on the economy, along with the Covid-19 pandemic.

In September, after a high-level meeting led by President Xi Jinping, China changed its position on real estate, calling for a halt to the sector's decline.

To support the sector, a whitelist process is being implemented to complete construction on the numerous apartments that have been sold but not yet built due to developers' financial difficulties. In China, new apartments are usually sold before construction is finished.

Fitch Ratings' lead analyst for China, Jeremy Zook, stated that the real estate market had not yet reached its bottom and that authorities may offer more direct support. Despite China's efforts to reduce its dependence on the real estate sector for economic growth, the economy found it challenging to transition away from it.

The latest government measures have contributed to a slight improvement in sentiment and a stock market rally.

Goldman Sachs analysts reported that sales of new homes in China's largest cities have increased by almost 40% in the past 30 days compared to the same period last year.

High inventory levels in smaller cities suggest that property prices "may continue to decline" and that homebuilding "will likely remain sluggish for an extended period."

In Foshan, a city near Guangzhou in southern China, it could take 20 months to clear housing inventory in one district and seven months in another district, according to a 2024 report from Beike Research Institute, which is linked to a major housing sales platform in China.

Last year, the city experienced a 16% decrease in floor space sales, marking the lowest level in a decade, according to the report.

Geopolitical concerns

Beijing, like Washington, has prioritized domestic players in strategic sectors such as technology to address complicating economic challenges due to tensions with the U.S.

To retain customers in China, European businesses are being pressured to localize, even though it comes with added costs and reduced productivity, according to a report by the EU Chamber of Commerce in China last week.

Official Chinese statements have also emphasized coupling security with development.

Yang Ping, director of the investment research institute within the National Development and Reform Commission, stated at a press event on Wednesday that a slogan for part of Beijing's efforts to support growth is an emphasis on building "security capabilities in key areas."

"This year, the main focus of the policy adjustment is to expand and boost consumption," Yang said in Mandarin, translated by CNBC.

She disregarded worries that the influence of trade-in subsidies on consumption would decrease following an initial surge, and stated that additional information would be presented following the March parliamentary session.