Contrary to usual, the Central Bank of China published the results of an investigation conducted in October 2019. These results show that the Chinese had a high level of personal debt even before the COVID-19 crisis broke out.
About half of the nearly 30,000 Chinese households participating in the survey live in debt, with an average debt of $ 72,000 and two-thirds of which is in the form of collateral. That means that 60% of private household assets in China are invested in real estate and only one fifth are cash investments.
By announcing the results of this investigation, the People’s Bank of China (PBoC) implies a desire to explain why the measures taken by the Chinese government so far may not be strong enough to boost the economy after the crisis. panic COVID-19.
According to Swiss Bank UBS, Beijing has issued an economic incentive program worth 4% of GDP compared to the economic stimulus package equivalent to 10% of GDP launched after the previous global financial crisis. In 2016, the Chinese government’s stimulus measures were equivalent to 2% of China’s economic output.
Opposition views
There may be mixed views on China’s economic bailout. One view is that Chinese people have more money in reserves than Americans. While Chinese people save about one-third of their after-tax income, Americans save only about 7% of their after-tax income, thus making debt less burdensome in China. But there are also arguments that mean that Chinese public debt is not allowed to rise sharply again .
Others may argue that the current level of government spending may be more important than ever to boost the economy and even to avoid paying a larger amount of debt in the future.
Clearly, the Chinese economy is facing major challenges after the corona crisis. China’s GDP in the first quarter of 2020 fell 6.8% and this was the worst decline in centuries. Therefore, the Chinese government’s belief that it can overcome the situation with economic stimulus measures worth 4% of GDP is controversial.
Promoting consumer spending should be a priority because the service industry has long been a driver of economic growth, contributing about 60% of China’s total economic output. In the first two months of this year alone, retail sales in China decreased by 2% and by 16% in March.
Consumers are still cautious
It can be said that the worst epidemic period in China has passed and the Chinese economy is gradually recovering. But unlike the post-pandemic SARS period, consumption has not been mutated and is increasing slowly. Chinese people have become more cautious, especially in fear of a second wave of infection.
According to a study by the Southwest China University of Finance and Economics, based on a survey of 28,000 households, more than half of the surveyed households plan to save more and reduce spending. after the COVID-19 pandemic subsided. About 40% of participants said they would not change their habits and only 9% planned to increase spending compared to before the pandemic.
Whether consumers’ purchasing power will recover after a sharp decline in the first quarter of the year is still a question. In addition to rising family debt levels, a major difference from the post-SARS period is the importance of current consumption for China’s economic activity.
How to make a difference
Unlike governments in Europe, the US and Japan, which have implemented comprehensive economic stimulus plans, Beijing tends to adopt a scattergun (sniper) approach to bring the economy in. reels back. The Chinese government announced tax cuts, interest rate cuts and partial repayment of social insurance premiums.
In addition, Beijing ratifies customer coupon programs and provides liquidity support to companies. Particularly in Hangzhou City, the number of customer vouchers worth $ 64 million was redeemed within 56 hours.
The idea of extending weekends is being discussed in several provinces to promote domestic tourism, as the revenue is expected to fall by 69%.
However, it is unlikely that investment in any major infrastructure projects. "Too much of the stimulus program can lead to inflation and increase in debt limits," said a PBOC spokesman. The market for apartment buildings, airports and high-speed trains in China has been saturated more than 10 years ago.
It can be seen that this time China will refrain from participating in promoting global economy by receiving higher debt levels. Instead, Beijing is trying to achieve the greatest efficiency by acting "drip" only when absolutely necessary at least for the time being.
