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China won’t give up on its failing economic model

opinionChina won’t give up on its failing economic model

Xi Jinping’s leadership favours state-led investment over individual fiscal support.

In response to missing post-pandemic growth targets, China has introduced various economic stimulus measures, including stock market support, monetary policy easing, and recapitalization of state-owned banks. However, these measures largely exclude direct assistance to households.
The primary short-term challenge for China is weak domestic demand, driven by a lack of consumer confidence. This has led to a savings glut and exacerbated industrial overcapacity, creating an economic doom loop.
The slowdown in disposable income growth has shifted expectations from economic opportunity to tempered growth and mounting pressures. The stimulus plans do not provide the necessary household-level financial support to restore confidence.
The stimulus measures seem aimed at restoring confidence among the business elite rather than addressing consumer demand. The People’s Bank of China (PBOC) has implemented programs to inject liquidity into markets and support financial asset prices. Direct support for households is minimal, with measures like mortgage refinancing and reduced down payments for second homes. These are intended to stabilize housing prices and strengthen household balance sheets.
Xi Jinping’s leadership favours state-led investment over individual fiscal support, aiming to transform China into a self-reliant global superpower. This approach prioritizes ideological unity and strategic industries over boosting consumer spending. The stimulus package does not address deeper structural issues in China’s economy. Without stronger income growth, households will continue to save at high rates, and long-term economic outlook remains uncertain.
If economic conditions worsen, Xi might pivot his policies, potentially softening his stance toward the West.

* The Dalai Lama’s nephew, Khedroob Thondup is a geopolitical analyst.

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