The calls for China stimulus are becoming more intense - both domestically and internationally.

• Despite being the world's second-largest economy, China has been facing challenges due to a real estate downturn and weak consumer sentiment.
• According to Goldman Sachs analysts, the likelihood of China missing its 'around 5%' full-year GDP growth target is increasing, which means the need for more demand-side easing measures is also rising.
• Beijing-based chief economist at Bank of China International, Xu Gao, stated that the current policy to stabilize the property market is inadequate.

Economists within China are increasingly advocating for economic stimulation to boost growth.

Liu Shijin, a former deputy head of the Development Research Center at the State Council, advised China to issue at least 10 trillion yuan ($1.42 trillion) in ultra-long government bonds for investment in human capital over the next year or two.

According to a CNBC translation of Liu's Mandarin-language remarks available on financial data platform Wind Information, Liu stated that the company's revenue growth rate for the first quarter of 2021 was 10.8%, which was higher than the industry average.

On Saturday at Renmin University's China Macroeconomy Forum, he presented a plan titled "A basket of stimulus and reform: Expanding domestic demand for economic revitalization."

Liu suggested that China should increase its efforts to tackle the difficulties faced by migrant workers in urban areas. He stressed that Beijing should not adopt the same stimulus measures as developed economies, such as lowering interest rates, because China has not yet reached the stage of slowdown.

Despite a disappointing recovery from the Covid-19 pandemic, China's real estate market and consumer confidence have remained under pressure. Official data in the last two months shows slower growth in manufacturing, but exports have been the only bright spot.

Goldman Sachs revised its annual growth forecast for China from 4.9% to 4.7%, citing recent data releases and the delayed impact of fiscal policy on the economy, according to a Sept. 15 note by analysts.

According to Goldman analysts, the likelihood of China missing its 'around 5%' full-year GDP growth target is increasing, which means the need for more demand-side easing measures is also rising.

The Third Plenum meeting of China's top leaders in July mainly repeated existing policies, but stated the country's commitment to meeting its full-year targets set in March.

Beijing unveiled additional targeted plans to stimulate consumption in late July, offering subsidies for trade-ins, specifically upgrades of large equipment such as elevators.

Despite several businesses stating that the moves had not yet had a significant impact, retail sales increased by 2.1% in August compared to the same month last year, which was one of the slowest growth rates since the post-pandemic recovery.

Real estate drag

In recent years, China has taken steps to support the real estate industry, which previously contributed significantly to the economy. However, despite these efforts, the property market continues to decline, with related investments decreasing by over 10% in the first eight months of the year.

Xu Gao, the Beijing-based chief economist at Bank of China International, stated at an event last week organized by the Center for China and Globalization that the elephant in the room is the property market.

Despite the presence of demand from China's consumers, they are hesitant to purchase property due to the perceived risk that the homes may not be delivered on time.

In China, apartments are usually sold before they are completed. According to Nomura's estimate in late 2023, approximately 20 million pre-sold units remain unfinished. Homebuyers of one such project have been waiting for eight years to receive their homes, as reported by CNBC earlier this year.

To stabilize the property market and restore confidence, Xu suggested that policymakers should provide financial assistance to property owners.

He stated that the current policy to stabilize the property market is insufficient, as the sector likely requires support on a larger scale of 3 trillion yuan, compared to the 300 billion yuan announced so far.

Different priorities

The leaders of China have prioritized enhancing their advanced manufacturing and technological capabilities, particularly in response to increasing U.S. limitations on high-tech exports.

Gabriel Wildau, a U.S.-based managing director at consulting firm Teneo, stated in a note earlier this month that the Politburo meeting in late July indicated an intention to increase policy stimulus, but the level of escalation was only slight.

Even if the GDP growth target of around 5% is achieved through nominal growth of around 4% combined with around 1% deflation, top leaders seem content to settle for this outcome, according to him.

Yi Gang, the former governor of the People's Bank of China, advised leaders to combat deflationary pressure in early September by implementing proactive fiscal policy and accommodative monetary policy.

Yi was not a key member of the top Chinese economic policymakers and his influence has decreased since his retirement last year, according to Wildau.

Local government constraints

The growth in China's retail sales, industrial production, and fixed asset investment was slower than anticipated, according to the country's latest report.

Although the government bond financing increased, the growth of infrastructure investment decreased significantly due to the tight fiscal conditions faced by local governments, as stated by Nomura's Chief China Economist Ting Lu in a Sept. 14 note.

""Conventional monetary policies are no longer effective under new shocks, so fiscal policies and reforms should be prioritized in China's economy," he stated."

Despite anticipation that the U.S. Federal Reserve's rate cut earlier this week would prompt further monetary policy easing in China, the PBOC kept one of its key benchmark rates unchanged on Friday. Meanwhile, fiscal policy has been more restrained so far.

"According to Nomura's Lu, Beijing should directly fund the property market to stabilize it, as the housing crisis is the root cause of the shocks. Additionally, Beijing needs to increase transfers from the central government to ease the fiscal burden on local governments before they can find long-term solutions."

Despite the official growth rate of 5% in the first half of the year, China's economy experienced a more-than-expected surge of 8.7% in exports in August compared to the previous year.

To achieve this year's 2024 growth goals, which are around 5%, we must focus intensely in the short term, as stated by Zhu Guangyao, a former vice minister of finance, at a recent event at the Center for China and Globalization. Despite the challenges, we remain confident in our ability to reach that goal.

He stated that China's financial reforms concentrate on budget, regional fiscal changes, and the relationship between central and local governments. Zhu pointed out that some government revenue had fallen short of expectations.

He highlighted that the Third Plenum meeting of China focused on long-term objectives, which he believed could be accomplished with an annual GDP growth rate of 4% to 5% in the upcoming decade.