Monday, April 22, 2024

Beijing rejects ‘bazooka stimulus’ to economy

Neal Wallace
China adopts policies that will create a more sustainable economy, albeit with slower growth.
Reading Time: 2 minutes

The Chinese government is not relying on a sugar rush to ignite its stagnating economy, in an intentional move from previous growth-at-all-cost policies.

New Zealand China Council executive director Alistair Crozier said the Chinese government is instead adopting policies that encourage slower rates of growth but will create a more sustainable economy.

Earlier this month China held its annual week-long National People’s Congress at which the government forecast economic growth of about 5% and plans to pursue a more technology-based economy.

Low consumer confidence in what is NZ’s key export market, has dramatically slashed returns for NZ exporters, especially for sheepmeat.

Crozier said one consumer stimulation policy to emerge from the Chinese congress was a small increase in social security payments to pensioners.

“It’s not that they haven’t done anything, it just not something dramatic like a bazooka stimulus to artificially boost the economy,” he said.

Instead, it wants to grow the economy by adopting new technology, including in manufacturing, and digitisation.

Some of this is driven by necessity as Western nations have restricted China’s access to hi-tech products.

Crozier said it appears the government will allow the struggling Chinese housing market and soaring local government debt, which has weighed heavily on consumer sentiment, to largely resolve itself without government stimulus.

Previously it would have responded to help a sector like property to adjust.

Crozier said little emerged from the congress that would indicate when consumer confidence may return and China’s consumers start spending again.

“Chinese consumers are not broke. They have kept on saving and are waiting to see what will happen next.

“If the Chinese government stays the course – and it will require nerve – ultimately the economy will be stronger and provide a more sustainable basis for economic prosperity.”

Crozier said the Chinese government needs the mandate of its people and listens to consumer sentiment.

It also has tools and levers it can pull if it senses consumer disquiet.

He described the Chinese market as subdued “but certainly not dead”, and noted it emerged from covid a year after most other nations.

Last year the value of NZ exports to China fell 9% but were still worth $18.4 billion, representing 27% of our global exports – twice that of any other market.

Last week Zespri sent its first kiwifruit shipment of the season to China, and Crozier said there is optimism it will be well received by consumers.

Increasingly tier three and four cities in China, which have smaller populations, are seeking high value imported products.

These cities have populations of millions of people and that growth potential is linked to expanding e-commerce and growing global awareness of alternative products.

He said the current rebalancing of the Chinese economy highlights the need for exporters to adopt a China-and instead of a China-or approach, to ensure they are not overly reliant on the market.

“For a number of sectors China is their top export market so it is sensible to look for new markets.”
However, establishing supply channels including meeting regulatory requirements is a complicated process, so diverting product to alternative markets such as India will take time.

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