China's fiscal stimulus, according to S&P Global Ratings senior analyst Yunbang Xu, is beginning to lose its effectiveness. In a recent report, Xu stated that the effectiveness of the fiscal stimulus is more of a strategic move to buy time for industrial and consumption policies rather than providing immediate results. The analysis conducted used the growth in government spending as a measuring tool for the effectiveness of the fiscal stimulus.
China has set a GDP growth target of around 5% this year, a goal that many analysts have deemed ambitious given the current level of announced stimulus. The head of the top economic planning agency in classes stated that China would strengthen macroeconomic policies and enhance coordination among various economic sectors such as fiscal, monetary, employment, industrial, and regional policies. However, high debt levels are proving to be a significant challenge in how much fiscal stimulus can be undertaken by local governments, regardless of their income level or region.
The debt-to-GDP ratios can range significantly among different cities in China. For example, the high-income city of Shenzhen may have a debt-to-GDP ratio of around 20%, while the low-income city of Bazhong in Sichuan province could have a ratio as high as 140%. As a response to fiscal constraints and diminishing effectiveness, local governments are expected to focus on reducing bureaucracy and improving the business environment to support long-term growth and living standards.
One of the notable impacts of the changing effectiveness of fiscal stimulus is on investment in China. According to Xu, investment, especially in the property sector, has seen a drastic slowdown which has affected the overall investment landscape. However, there was an uptick in fixed asset investment in March, particularly in the manufacturing sector, based on official data released recently. The Chinese government