China is preparing to introduce a fiscal stimulus package that could total up to 2 trillion yuan ($283 billion), as per expectations from market participants and economists. This potential boost in public spending is seen as a key strategy to revive the world’s second-largest economy, which has been grappling with sluggish economic growth in recent years.

The stimulus is expected to be revealed by China’s Finance Minister Lan Fo’an in a highly anticipated briefing, with many hoping it will provide a significant boost to investor confidence. According to a survey conducted by Bloomberg, the majority of the 23 respondents, including economists, strategists, and fund managers, believe the stimulus measures will be rolled out within the next six months, even if not fully detailed during the weekend conference.

While the size of the package is significant, experts highlight that the focus of the fiscal intervention is more critical. According to Pushan Dutt, a professor of economics at INSEAD, the stimulus should aim at long-term reforms by targeting household consumption rather than simply reigniting the real estate investment growth model, which has already left China’s economy with a substantial debt burden.

What the Stimulus Could Include:

The expected measures may involve an array of subsidies, vouchers, and support initiatives aimed at lifting domestic consumption, a weak spot in China’s post-pandemic recovery. Some of the anticipated actions include:

* Subsidies for elderly and low-income groups

* Consumption vouchers

* Support for families with children

* Enhanced social safety net

Boosting domestic demand would help rebalance China’s economy and reduce its reliance on exports, a strategy that is becoming increasingly crucial as global trade tensions rise.

Previous Stimulus Efforts and Market Reactions:

China has already implemented a range of measures to support its property and stock markets, including interest rate cuts and steps to stabilize market volatility. However, as seen last week, Chinese onshore shares ended a 10-day rally when the market was disappointed by the lack of significant new stimulus after a weeklong holiday.

Government agencies are now more cautious about managing market expectations. As noted by Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc, authorities are likely to "feel the pulse of the market before publishing policies" to avoid disappointing investors.

Expectations Moving Forward:

Most economists believe that China will announce new debt sales to support public spending through 2024. Special bonds, which are used to fund specific projects like infrastructure, are expected to play a significant role in the fiscal stimulus. While a few respondents anticipate a stimulus package exceeding 3 trillion yuan, the majority expect it to fall around the 2 trillion yuan mark.

In the past, infrastructure investment was a reliable tool for economic growth during downturns, but years of urbanization and a lack of quality investment opportunities make it less effective today. Instead, the stimulus may now be targeted toward buying land and buildings from developers, easing the strain on the real estate market.

Challenges in Stimulus Rollout:

China’s economic recovery has been further hampered by local debt risks and a dramatic slump in revenue from land sales. As a result, local governments are under pressure, and there are calls for the central government to borrow more to ease these fiscal strains.

The authorities may tap into the unused bond allowance from previous years, which totals around 2 trillion yuan, according to official data. This allows China to inject fresh stimulus without going through the National People’s Congress, expediting the process.

The central government could also increase transfer payments to local governments, helping them cover their daily expenses, including the salaries of civil servants.

With China’s GDP growth at its slowest pace in five quarters and domestic demand remaining subdued, economists are calling for aggressive public spending. However, fiscal constraints and debt risks remain significant hurdles for the government.

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This article highlights the importance of fiscal intervention in China’s economy and the key elements driving market expectations. It also provides a comprehensive overview of the potential impact of stimulus measures on consumption, public spending, and the real estate sector.