The stimulus plan that China just rolled out will boost new areas of the economy while avoiding funneling money into the troubled property sector, according to a former central bank official.
“The package is not huge or big but I think the impact will be big because it focuses on the climate-change issue” and other areas that will become “competitiveness sectors” for the world’s No. 2 economy, said Zhu Min, a former deputy governor of the People’s Bank of China who also served as a deputy managing director of the International Monetary Fund.
The stimulus will propel growth in sectors the government favors, such as advanced manufacturing and renewable energy, while ensuring debt levels won’t increase dramatically, he said in an interview with Bloomberg TV on Tuesday evening New York time. Zhu described the package as “sectorial, earmarked, clear structure-oriented,” and intended to benefit industries that the government wants to replace old economic drivers like property and infrastructure.
Late Tuesday, China stepped up support for the economy by making moves including issuing extra sovereign debt and raising the budget deficit ratio. The plan includes issuing additional sovereign debt worth 1 trillion yuan ($137 billion) in the fourth quarter to support disaster relief and construction.
In June, Zhu said China was unlikely to roll out massive stimulus to shore up the economic recovery, adding policies will likely target structural issues rather than big macroeconomic ones.
China’s debt-to-GDP ratio rose to a record in the second quarter, and concern is mounting over borrowing by local governments and their financing platforms. “Because Chinese debt is high already, totaling roughly 280% of GDP, so we cannot bring a huge, oversized generous stimulus,” Zhu said in the BTV interview.
See: Xi Steps Up Economic Aid With New Debt Issuance, PBOC Visit
Zhu also said China’s economy should grow by 5% this year.
“Next year, it will probably be around 5% as well, maybe a little bit lower, between 4.5% and 5%,” said Zhu, now chairman of the National Institute of Financial Research at Tsinghua University. “That will be a reasonable margin” for the growth target.
He added that overall the Chinese economy is “stabilizing already,” comments that come after China reported stronger-than-expected third quarter data last week even as the property market remains a drag.
Economists polled by Bloomberg project the economy will grow 4.5% in 2024 after expanding 5% this year.
More: China Can Reach 5% Growth Rate in 2024, Ex-PBOC Official Says
(Updates with more details and comment on debt levels.)
