As a new measure to stimulate economic recovery, the Chinese authorities have directly allocated 300 billion yuan (RMB, Renminbi) in ultra-long-term national debt funds to support equipment upgrades and consumer goods replacement projects. Analysts believe that amid foreign capital withdrawal, overcapacity, sluggish domestic demand, and a downgrade in consumer spending, the impact of the authorities investing this money is limited and may easily be embezzled by local officials.
The National Development and Reform Commission (NDRC) and the Ministry of Finance issued a document on July 25, claiming to “strongly support large-scale equipment upgrades and consumer goods replacement.” The measures include coordinating the allocation of around 300 billion yuan in ultra-long-term special national debt funds.
The authorities claim they will directly allocate approximately 150 billion yuan in ultra-long-term special national debt funds to support local autonomous implementation of consumer goods replacement. The official notice also mentions allocating nearly 150 billion yuan to support equipment upgrades for enterprises, with no longer requiring a “total investment of not less than 100 million yuan” rule.
Zhao Chenxin, deputy director of the NDRC, stated in a press conference that the full 300 billion yuan will be disbursed by the end of August.
Chairman of Taiwan’s Wealth Magazine Xie Jinhe told The Epoch Times that the 300 billion is not substantial because of the very sluggish domestic demand in China. The profits of e-commerce have severely impacted physical stores, and the bursting of the real estate bubble has made people reluctant to consume. The performance of many high-end consumer goods has significantly declined.
With the domestic demand being weak, the injection of 300 billion yuan is relatively insignificant. China needs to address core issues like the bursting real estate bubble instead of instilling more tension and fear of war. The rapid development of the Chinese economy in the past relied significantly on Taiwan businesses continuously investing people and funds in China. Now that Taiwanese businesses are pulling out, tensions between the two sides are escalating, including the recent 22 measures aimed at countering Taiwan independence, which will accelerate the exodus of Taiwanese businesses. Instead of attracting new funds, China is losing funds to overseas.
Although the authorities have directly allocated funds to localities, they emphasize that the funds should not be used to balance local budgets or repay local government debts, ensuring they are used for their designated purposes and guarding against illegal acts such as embezzlement.
Xie Jinhe mentioned that the opacity in the past and present financial practices of various levels of the Chinese government make it susceptible to corruption. Previously, local governments could secure revenue through land transactions, but with that source cut off, the fate of the 300 billion once disbursed remains uncertain.
Xu Xingfeng, an official from the Ministry of Commerce’s Consumption Promotion Department, admitted during a press conference on July 25 that China’s consumption faced “significant pressure” in the first half of this year. Stabilizing the four major pillars of automobile, home appliances, household goods, and catering would stabilize consumption according to Xu.
Xu mentioned subsidies for exchanging old for new cars, where individual consumers who scrap old cars and purchase new ones will receive subsidies. The subsidy standards have been increased for buying new energy passenger cars to 20,000 yuan each and for purchasing fuel passenger cars to 15,000 yuan each. Buyers of certain home appliances like TVs, air conditioners, and computers will receive subsidies equivalent to 15-20% of their selling prices, not exceeding 2,000 yuan per item.
Xu Zhen, a veteran in the mainland capital market, told The Epoch Times that China introduces similar stimulus policies annually but their actual economic impact remains limited.
“With most industries facing excess capacity except for a few like semiconductors, convincing small and medium enterprise owners to expand their capacity would be challenging.”
From the perspective of personal consumption, the focus of this policy is on upgrading home appliances and promoting new energy vehicles. Xu Zhen noted, “The policy of upgrading home appliances has already been enacted from 2008 to 2012 with rural appliance policies. The subsidy range has only increased slightly from 13% to 15-20%. Regarding new energy vehicles, the subsidy was 12,600 yuan per vehicle before 2022, now raised to 20,000 yuan. These marginal increases might not have a significant impact.”
Due to falling house prices, employment instability, and high debt levels, Chinese consumers have become more cautious in their spending. Official data shows that China’s retail sales, an indicator of consumption, only grew by 2.0% in June, the lowest level in 18 months. China’s economic growth in the second quarter dropped from 5.3% in the first quarter to 4.7%, the lowest since the first quarter of 2023. The veracity of China’s official data has been questioned by external sources.
Recently, numerous discussions have surfaced on the mainland internet, sharing tips on saving money or utilizing public resources for free meals, accommodation, or managing daily life.
Xu Zhen attributed this phenomenon to the overall economic downturn leading to consumer downgrades and significant shifts in spending attitudes due to uncertainties about the future. He believes that the youth, who were previously unfamiliar with frugality and hardship, have started reining in their expenses after experiencing pandemic lockdowns, continued economic decline, and job losses. Practices like “lying flat” are indications of the lack of confidence in their future lives, society, and even the government, posing a crisis for the Chinese regime.
Xie Jinhe foresees greater challenges ahead for the Chinese economy. “Japan’s bubble economy adjustment took about 30 years, and China cannot evade its bubble adjustment. Previously, foreign direct investment poured into China totaled $2.7 trillion. With such a substantial amount of money flowing out, China will face greater tightening and impacts.”
He criticized Chinese authorities for spending on displays of strength in the Taiwan Strait instead of aiding the real economy. Redirecting the funds towards the real economy would yield more favorable outcomes, which has not been the chosen course of action.