China’s government has announced a new measure to boost the economy by allocating 300 billion yuan (about $41.4 billion) of ultra-long-term treasury bonds to local governments. The funds will be used to support equipment upgrades and consumer goods trade-in projects. However, analysts have raised concerns about the effectiveness of this move, citing issues such as foreign capital withdrawal, production overcapacity, sluggish domestic demand, and decreased consumer spending.
The National Development and Reform Commission (NDRC) and the Ministry of Finance made the announcement on July 25. They stated that 150 billion yuan (about $20.7 billion) of special treasury bonds would be directly allocated to local governments for implementing a policy that encourages consumers to trade in old goods for new ones. Another 150 billion yuan would be allocated to support enterprise equipment upgrades.
Zhao Chenxin, deputy director of the NDRC, confirmed that the funds would be fully allocated by the end of August.
However, Hsieh Chin-ho, chairman of Taiwan’s Wealth Magazine, expressed skepticism about the impact of these subsidies given China’s weak domestic demand and other economic challenges such as e-commerce competition and a burst real estate bubble.
Hsieh also highlighted how Taiwanese businessmen are withdrawing their investments from China due to increasing tensions between Taiwan and mainland China. He predicted that this trend would further hinder China’s economy in the future.
While Chinese authorities emphasized that these funds should not be misused or embezzled by local officials, Hsieh pointed out that corruption is still a concern due to lack of transparency at various levels of government in China.
Xu Xingfeng from the CCP’s Ministry of Commerce acknowledged that domestic consumption faced greater pressure in the first half of this year but suggested stabilizing key sectors like automobiles, home appliances, household goods, and catering could help stabilize overall consumption.
However, Xu Zhen, a senior Chinese capital market analyst questioned whether these stimulus policies would have a significant impact on boosting consumption given changing consumer behavior during an economic downturn caused by factors like COVID-19 lockdowns and unemployment.
Overall concerns remain about whether this latest measure will effectively stimulate China’s economy amid ongoing challenges both domestically and internationally.
