China wants to overcome the economic crisis with a number of economic stimulus measures and personnel changes in key positions. It remains to be seen whether such a turnaround can succeed.
As has long been suspected on the capital markets, China has appointed a new head of the central bank. Vice President Pan Gongsheng replaces Yi Gang as head of the central bank, Chinese media reports. Pan has been Vice Federal Reserve since 2012. He had also done research at Cambridge and Harvard.
His most important tasks will include de-escalating the situation on the real estate market, stabilizing the yuan currency and taking appropriate measures to prevent China from slipping into deflation, as well as stimulating the economy after the end of the Covid lockdowns.
More private investment
Just on Monday, the Politburo promised some economic stimulus measures at its most recent meeting. This includes a “prudent” monetary policy and a stable currency. It was decided to increase domestic demand, strengthen confidence in the market and defuse financial risks.
The private sector is to be given its own investment policy and its business environment is to be improved. Private investments should primarily flow into areas such as energy, water, infrastructure, transport and agriculture.
Reduce taxes and duties
In addition, taxes and duties are to be reduced and monetary policy measures are to be fully exploited. The yuan should be kept stable at a “reasonable level”. Consumption must be stimulated. In particular, the demand for automobiles, electronic devices and household appliances is to be supported.
At the same time, the government wants to adopt measures to promote the sale of electric vehicles in rural areas. This also includes extending cheaper taxes for the purchase of electric cars.
According to Tommy Wu, Senior Economist at Commerzbank, the plans are not yet concrete in terms of the scope of the support. “We will probably have to wait for various ministries and local governments to announce more concrete plans in the coming weeks.”
New measures probably on the way
New measures to support consumption, the real estate sector, infrastructure investments and credit conditions would probably come. But these should just be enough for the economy to reach the official target of around five percent growth.
Shou-Pin Choo, Portfolio Manager, Asia & EM Equity, UBS Asset Management, also expects further economic growth in China: “We assume that the consumption-driven recovery in China will continue at a moderate pace and expect that consumers with higher incomes will be willing to pay more for better-quality products and services.”
The Chinese economy grew 6.3 percent in the second quarter, China announced on Monday. That was significantly less than the market expectation of 7.3 percent. Meanwhile, the International Monetary Fund (IMF) has confirmed its growth forecast for China of 5.2 percent. For the coming year he still expects an increase of 4.5 percent for China.