Foreign News, Uncategorized

Trump: China unveils $1.4tn package to Boost Faltering economy

Authorities Insist Decision has Nothing to do With Trump's Win

Emmanuel Eze

November 8, 2024

In a seeming response to Donald Trump‘s emergence as the 47th president of the United States of America, and his announcement of his tariff plans, the China government has announced plans to inject $1.4 trillion into its faltering economy.

This is seemingly in response to Trump’s comments on increased tariffs on Chinese imports and is coming after a string of economic stimulus packages were introduced earlier in September.

Trump’s Tariffs on China

As president of the US between 2016 and 2020, Donald Trump imposed blanket tariffs on imported solar panels, steel, aluminum, and almost everything from China which significantly affected China-US trade relations.

Also Read:

During his 2024 campaign, Donald Trump doubled down on his tariff drive proposing a 60% tariff on goods from China and a tariff of up to 20% on everything else the United States imports. If Trump makes do with his threats, the faltering Chinese economy would be in an even bigger fix than it currently is.

Faltering Chinese Economy

China’s economy has failed to hit its pre-COVID-19 heights in recent years to the dismay of Chinese policymakers and businesses.

The economic downturn in China has been attributed to a lot of factors including:

Real Estate Corrections

The real estate sector which accounts for an estimated 30% of Chinese GDP has failed to recover from the challenges it faced post-Covid due to a shrinking population and an over-investment in the sector.

This situation has led to unoccupied houses across China and broke developers who can no longer service the loans taken out to finance their building projects, Chinese local governments who predominantly fund expenditure through land sales are not left behind as they are also drowning in debt as a result of off-balancing sheets they use to spend more than their official budgets can carry.

Manufacturing decline

The manufacturing sector seen as the bedrock of the Chinese economy is also declining fast. With the global economy slowing amidst global tensions, countries are more reluctant to engage with China. The tariffs imposed on Chinese goods by Europe and the US have also not helped matters.

Weak Consumption:

The Chinese emerged from COVID-19 with high unemployment and households who had lost most of their investments in the property sector due to a swift decline in property prices. The Chinese have thus been forced to cut back on spending, which has taken a toll on the Chinese economy.

Subdued private sector

The Chinese private sector has suffered regulatory challenges that have affected their output. The Chinese government has given public enterprises more leeway in accessing loans and dominating the capital market which has made private companies unable to displace inefficient state-owned enterprises.

Chinese Economic Stimulus Packages

In September, the Chinese government introduced two funding schemes to pump as much as 800 billion Yuan ($112.38bn) into the stock market in the form of monetary policy tools.

The Swap and Relending schemes worth 500 and 300 Billion Yuan respectively were aimed at supporting the steady development of Chinese capital markets.

Under the swap scheme, brokerages, fund management firms, and insurers can secure liquidity from the Chinese central bank by using assets as collateral to purchase stocks, bringing incremental funds to the stock market and enhancing shareholder returns.

The lending scheme on the other hand was to provide loans to listed Chinese companies and key shareholders to enable them to fund stock purchases.

Latest $1.4trillion Package

Under the latest $1.4trillion package introduced by China, the country’s troubled local governments have been authorized to issue Rmb6tn in new bonds over three years and reallocate a further Rmb4tn in previously planned bonds over five years to restructure their finances and pay off debts.

There were no indications as to how the package would help stimulate an increase in local demands leaving markets in disappointment. Officials however added that they were studying other ways to revitalize the economy and boost domestic consumption.

Market Response to Trump’s Win?

After the announcement of Donald Trump’s win, China’s renminbi weakened sharply against the US dollar with the onshore yuan falling as much as 0.4 percent to less than Rmb7.17 to the dollar.

However, Chinese analysts insisted the debt relief measures had been expected even before Donald Trump’s victory and were not a direct response to Trump’s electoral win and the resultant surge in the US Dollar’s value.

They further noted that if Trump’s threats of a 60% tariff on Chinese goods is effected, it could knock several percentage points off China’s GDP at a moment when the economy is highly vulnerable.

Way Forward for China

China’s manufacturing industries and exports have been picking up this year and is helping Beijing come closer to hitting its growth targets. September’s economic stimulus also seem to be bearing good fruits.

According to Chinese Economist Wei He, “There have been some early signs of a pick-up in domestic demand.

“Housing sales are improving, the official PMI is rebounding and stock prices have made handsome gains,” Wei added.