China's Feeble Attempts to Revive Its Ailing Economy

China's recent economic measures, touted as a "bazooka" by Wall Street, are unlikely to solve the country's deep-rooted economic problems. The article delves into the underlying issues plaguing the Chinese economy, from a lack of consumer demand to an overbuilt and indebted property market, and explains why the latest stimulus efforts are merely a drop in the well.

A Desperate Attempt to Prop Up a Faltering Economy

The Illusion of a Quick Fix

The Chinese government's recent announcement of measures to inject 800 billion yuan (around $114 billion) into the stock market and lower interest rates has sent Wall Street into a frenzy of optimism. Investors and analysts are hoping that these actions will be the long-awaited "bazooka" that will revive China's ailing economy. However, this excitement is misguided, as the underlying issues plaguing the Chinese economy are far more complex and deeply rooted.At the heart of China's economic woes is a lack of consumer demand and a property market that is undergoing a slow and painful correction. The government's ideological opposition to direct stimulus checks and the staggering amount of debt needed to fix the property market make it highly unlikely that these measures will have a meaningful impact. The "stimulus" announced by the Chinese Communist Party (CCP) is merely a drop in the well, and Wall Street's enthusiasm is a clear sign that they have not learned from past experiences.

The Limits of Monetary Easing

The measures announced by the CCP, such as lowering interest rates and allowing banks to keep less money in reserve, are intended to make it easier for Chinese people to access capital and buy property. However, the problem is not a lack of access to debt, but rather a lack of willingness to spend. With 70% of Chinese household wealth invested in property and housing prices declining by as much as 30% in Tier 1 cities since their 2021 peak, consumers are understandably cautious about taking on more debt.The deflationary pressures caused by the sinking property prices have spread to the wider economy, with consumer price inflation reaching a three-year low of just 0.3% in August. This has prompted concerns that deflation will take hold, further dampening consumer spending and job prospects.

The Ideological Constraints of the CCP

The most direct way to spur demand in a deflationary economy would be to send checks directly to households, but the CCP is ideologically opposed to this approach. The Chinese president, Xi Jinping, is a follower of the Austrian economist Friedrich Hayek, who believed that direct stimulus distorts markets and leads to uncontrollable inflation. This stance is at odds with what most economists would recommend for China's current situation, but those who criticize the CCP's policies tend to disappear.

The Limits of the CCP's Firepower

While the CCP has shown a willingness to take dramatic action to stabilize the economy in the past, the current situation is vastly different. The measures announced this week are tiny compared to the massive stimulus efforts of 2009, 2012, and 2015, which involved trillions of yuan in spending. The problem is that the current debt levels in the Chinese economy are at an all-time high, and the CCP is reluctant to blow up the bubble further or risk a spectacular burst.Moreover, Xi Jinping seems more interested in developing frontier technology and boosting exports to grow the economy, rather than restructuring the property market. However, these new streams of income have yet to materialize, and establishing them will take time and navigating trade conflicts with the US and the European Union.In the end, the CCP's recent easing measures are more akin to a respite from the constant stream of bad economic news, rather than a genuine solution to China's deep-seated economic problems. Wall Street's excitement is misplaced, and the Chinese economy remains mired in a complex web of structural issues that will not be easily resolved.