On March 31, 2024, an employee worked on a smart machinery assembly line in a workshop in Qingzhou, Weifang City, Shandong Province, China.
VCG | Visual China Group | Getty Images
BEIJING – China’s latest policies to boost demand will soon have a bigger impact on economic growth, a senior official at China’s economic planning agency told reporters on Thursday.
Amid international concerns about China’s oversupply and slowing growth, Beijing earlier this year announced plans to stimulate domestic demand through subsidies and other incentives for equipment upgrades and trade-in of consumer goods.
Officials expect this will generate more than 5 trillion yuan ($704.23 billion) in annual equipment spending, as well as an unspecified “trillion” in spending on consumer goods such as cars and home appliances.
Zhao Chenxin, deputy director of the National Development and Reform Commission, said implementation work is already underway.
“We believe that this work will achieve greater and greater results,” he said in Mandarin (translated by CNBC).
Following last year’s growth of 5.2%, China’s GDP target this year is set at around 5%. Analysts have been skeptical that the country can achieve its goals without additional stimulus. But this week Goldman Sachs and Morgan Stanley raised their forecasts to closer to the official target, in part due to growth in manufacturing.
Zhao said Beijing aims to increase equipment investment by more than 25% between 2023 and 2027.
Bruce Pang, chief economist and head of research for Greater China at Jones Lang LaSalle, said this means an annual GDP increase of about 0.5 percentage points. He pointed out that equipment replacement accounts for 9% to 10% of total GDP.
Zhao said other goals for 2027 include improving the energy efficiency of major energy-consuming equipment, roughly doubling the number of recycled cars, increasing used car transactions by 45% and increasing home appliance recycling by 30%.
When asked about the contribution to GDP, Zhao stressed that the policy was not only aimed at boosting consumption and investment, but also at reducing carbon emissions and improving safety – all in line with Beijing’s goal of promoting “high-quality growth”.
China is trying to downplay the overall GDP data and pay more attention to the sustainability of growth.
Central government financial support “strong”
In terms of fiscal funding for the upgrade, Zhao said the central government would provide “strong support.”
He did not elaborate, but Fu Jinling, director of the Economic Construction Department of the Ministry of Finance, outlined plans to subsidize agricultural machinery upgrades and provide tax incentives for water conservation. Fu noted that the People’s Bank of China will increase loans for companies to purchase new equipment and improve technology.
China will report first-quarter gross domestic product on Tuesday.
Francoise Huang, senior economist at Allianz Trading, sees an improvement compared with the second half of last year, although she expects overall GDP growth to slow this year compared with last year.
“We’re not back to pre-pandemic or 2021 confidence levels yet, but I think from policy rate cuts to central government taking on more fiscal spending pressure and of course this trade-in scheme… these types of measures are on the way,” she said. Help rebuild private sector confidence, which should reflect a modest recovery in domestic consumption.”
More policy coordination
Also speaking at Thursday’s press conference were officials from the Ministry of Industry and Information Technology, the Ministry of Housing and Urban-Rural Development, the Ministry of Commerce and the State Administration for Market Regulation.
JLL’s Pang said that while it is difficult to quantitatively assess the impact of these various announcements, “it reflects a good start in Beijing’s efforts to improve policy coordination among multiple government departments”. This is according to a Chinese translation of his remarks by CNBC.
The National Development Council’s Zhao said he was aware of at least eight relevant industry policies, including a document soon to be released by China’s Ministry of Commerce that will set out details for consumers to trade in old goods for new ones.
Other sectors he mentioned include construction, education, culture and healthcare.
Some equipment upgrades and consumer trade-in policies are also focus on raising standards The types of products that can be used.
Shan Zhongde, Vice Minister of the Ministry of Industry and Information Technology, told reporters that the country plans to promote the use of “digital” tools by more than 90% of key industrial enterprises by 2027.
He also said the ministry would promote the use of robots and the construction of digitally connected “smart” factories.
global spillovers
Beijing’s industrial policy support has helped the country become an export powerhouse and increasingly a leading producer of high-end products such as electric vehicles.
“There is some evidence that the industrial policies and policy priorities of the past few years and decades are paying off for Chinese manufacturing and Chinese industrial companies,” Allianz’s Huang said. “At the same time, they certainly should be concerned or should bear in mind that the risk of increased protectionism may increase.”
U.S. Treasury Secretary Yellen responds China’s overcapacity is a focus of her visit this month. German Chancellor Olaf Scholz will visit China next week.
China’s share of global exports in key categories such as machinery, chemicals, computers and household equipment has increased so much over the past few years that the country has become the world’s largest exporter in these sectors, a report from Allianz Trading showed on Thursday. Exports exceeded those of Germany.
The analysis found that Germany’s machinery exports to Southeast Asian countries fell by 14% compared with 2019, while China’s machinery exports to the region surged by 31%.
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