China’s adamant move toward its dejected economy in 2023

China, the world’s second-largest economy, has been facing a downturn for a while now. After COVID-19 hit its economy, it started facing economic challenges. The biggest spiral of trouble is China’s real estate industry, which has triggered the economy to slow down in the long run. Consumers are warily making decisions that lead to demand-supply misbalance. This misbalance has affected the economy as a whole, having a multiplier-down effect. The recent intervention and presence of China’s President Xi Jinping at the Central Bank of China sparked speculation about some economic measures being taken to reverse the slowdown.

Real Estate’s toppling debts

Investors turning down investment options in Chinese Tech Companies

What does this mean for the world?

Household spending declines will hurt hundreds of large international corporations, including Apple, Volkswagen, and Burberry, who rely heavily on China’s enormous consumer market for their revenue. The thousands of suppliers and employees who depend on these businesses worldwide will then experience the ripple effects. Considering that China accounts for over one-third of global growth, any slowdown would have an impact outside of its borders. Some economists, though, claim that the notion that China is the driving force behind world prosperity has been exaggerated. Reduced expenditure by China on goods and services, or on building homes, results in a decrease in the demand for commodities and raw materials. 

The Latest Economic steps by the Chinese government

China announced on Tuesday that it would issue 1 trillion yuan ($137 billion) in sovereign bonds, an attempt to support the economy after a weak recovery following the COVID pandemic. The bonds, which were unveiled on Tuesday, will be issued in the fourth quarter of this year and given to local governments to aid in the prevention and recovery of national disasters. It is anticipated that the bond issuance will cause the deficit rate to rise from 3.0 percent to about 3.8 percent.

China has rarely implemented mid-year budget adjustments; in the past, it has done so in the wake of the Asian financial crisis in the late 1990s, the Sichuan earthquake in 2008, and other events. However, there will probably still be a number of difficulties in 2024, such as issues brought on by the ongoing volatility of the real estate market and deflationary pressures. As for next year, economists predict growth will ease to 4.5%. Sovereign bond issuance as a means of financing infrastructure projects may also signal a change in policy priorities by shifting the financial burden from local governments, whose leverage is diminishing, to the federal government.

China’s general debt crisis appears to be the result of local government actions. It’s not like communities have adopted extravagant policies. The reason for this is that Beijing’s central planners use them as tools. These planners force local governments to issue the debt required to finance their spending programs, like the most recent infrastructure building plan.

Economists have speculated on the strong comeback of China’s economy, but further economic decisions to lend debt bonds to revive the economy are a riskier move. While the economy is solely balanced on consumer decisions, the government is trying to bear the economic debt burden of infusing investment by projecting the revisions in the budget with an increase in fiscal debt in the economy. This cannot wholesomely help the debt burden shift from the local governments to the central government, as the local governments themselves have huge unaccounted debts that can have strong repercussions on the Chinese economy.