China: 3 obstacles that threaten economic recovery

The Chinese economy is experiencing a worrying slowdown, despite recent stimulus measures introduced by Xi Jinping's government. The drastic decisions were not enough to reverse the trend, and it is likely that billions of additional yuan will have to be injected to counter the crisis. Meanwhile, the National People's Congress is busy developing a recovery plan with significant benefits for the Chinese economy, pending the outcome of the American presidential election.

The Chinese economic challenge: between recovery and uncertainties

China faces major economic challengeswell beyond just real estate issues. Despite several measurements deemed inadmissible such as interest rate cuts and relaxations in home purchase restrictions, markets remain skeptical.

There meeting in progress of the “Standing Committee of the National People’s Congress” aims to design a new large-scale economic aid plan to restore momentum to Chinese growth. Analysts hope to see this plan include massive investmentsin particular to support local authorities and banks struggling with non-performing loans.

The three priorities of this economic recovery seem obvious:

• Strengthen support for heavily indebted local authorities;
• Inject 1 trillion yuan in aid to banks to stabilize the financial sector;
• Encourage consumption by restoring confidence in Chinese households.

However, the challenges remain: real estate is at a standstill, households prefer to save, and public debt continues to climb. An additional budget is therefore expected to give a boost to the economy, but uncertainties remain high as to the effectiveness of this recovery.

Real estate crisis and effects of American foreign policy

The real estate crisis weighs heavily on the Chinese economy. Since the tightening of credit conditions in 2020construction sites in China have multiplied, without completing the initial projects, devaluing real estate. This depreciation dissuades households from investing in stone, while housing prices continue to fluctuate.

To revive this vital sector, Beijing recently announced a increase in credits to complete unfinished projects. Although property prices are showing some signs of recovery, Chinese consumer confidence still remains fragile.

In parallel, the American election also influences Beijing's strategy. A victory for Donald Trump could increase pressure on China, with the threat of higher tariffs on Chinese exports.

In this context, economists believe that China could be forced to further strengthen its recovery plan to cushion possible external shocks. According to economist Ting Lu, if Trump were to win the election, the size of aid could be increased by 10 to 20% to counter an unfavorable American economy.

Let us not forget that China's political decisions can reshape the global economy, and its current choices could have lasting effects on the overall economic balance.