Why China Hasn’t Used ‘Bazooka’ Stimulus to Rescue Economy

China has taken a series of incremental steps to boost its economy after a run of disappointing data showed the government is increasingly at risk of missing its growth target of about 5% for this year. But Beijing isn’t pulling out a “bazooka” stimulus package like it did during the global financial crisis in 2008-09, or even when the pandemic hit in 2020. Much of the reluctance lies in a drive by President Xi Jinping’s government to control the growth of debt in the country, especially at the municipal level; a desire to shrink the property sector’s outsized influence on the economy; and an aversion to doling out cash to consumers, Western-style.

One key word: property. This sector has been slumping since 2021, after Beijing tightened credit to large developers and told banks to slow mortgage issuance — part of a specific policy to make the economy less dependent on real estate. Housing, together with related industries like steel, cement and glass, accounts for about 20% of the country’s gross domestic product. As a result of those restrictions, housing sales have plunged and investment in property has contracted. Goldman Sachs Group Inc. estimates the housing downturn will reduce China’s GDP growth by 1.5 percentage points this year. The property crisis also means local governments, which are responsible for most public expenditures in China, have less money because they rely on revenue from housing and land sales. As a result, they’ve cut back on spending — a fiscal contraction that UBS Group AG estimates was equivalent to a percentage point of GDP in the first half of the year. Meantime, exports have been falling at double-digit rates, and slower income growth and still fairly high unemployment, especially for young people, means consumer confidence remains subdued. Putting all those factors together means GDP growth will likely come in at 5.1% this year, according to the latest Bloomberg survey of economists, although several Wall Street banks see the possibility that the official target will be missed.