Background

In the sprawling cityscapes of Shanghai and Beijing, the hum of the industry once echoed like a mighty drumbeat, signalling the rise of a global economic titan. Yet, somewhere between the rapid construction of towering skyscrapers and the feverish expansion of new markets, the pulse of China’s economy began to falter. It all started in the summer of 2021 when the collapse of the once-mighty Evergrande Group sent shockwaves rippling through the foundations of China’s sprawling property sector—a key pillar of its economic growth. What seemed like a momentary stumble soon turned into a protracted tumble. The Evergrande crisis was a symbol of deeper structural cracks: an overheated property market, soaring debt levels, and an unsustainable reliance on real estate as a growth engine. As Evergrande’s debts ballooned, defaults piled up across the sector, leading to a cascade of bankruptcies, plummeting housing prices, and a consumer confidence crisis. From the glittering skyscrapers of Shenzhen to the quieter streets of rural towns, millions of Chinese families found their wealth tied up in unfinished homes, while businesses, once buoyed by China’s rapid urbanization, saw profits evaporate.

Beyond the property sector, the ripple effects reached far and wide—retail sales slowed, manufacturing growth dwindled, and youth unemployment hit alarming levels. The government, which had long staked its legitimacy on economic progress, now found itself scrambling for answers. Its attempts to recalibrate the economy—by reining in debt, reforming state-owned enterprises, and promoting technological innovation—were met with mixed results. Confidence in China’s economic miracle began to erode, and whispers of a slowdown morphed into louder fears of a long-term decline. Then, as the fog of uncertainty hung over the world’s second-largest economy, October 2024 brought an unexpected twist to the tale. In a dramatic turn of events, China’s leadership announced a massive economic stimulus package—a bold gambit to revive growth and restore the nation’s global standing. As the world watched, cautiously optimistic yet deeply aware of the stakes, China stood on the precipice of a new chapter. Would this be the moment it found its footing again, or would the echoes of Evergrande’s fall continue to haunt its ambitions? In the wake of this sudden resurgence, China’s economic future hangs in a delicate balance, shaped by forces both external and deeply entrenched within its borders.

China’s Stimulus Package

In 2024, China’s economy found itself at a crossroads. Struggling with a slowdown that seemed almost inevitable after years of unprecedented growth, the country faced not only internal challenges but also the prospect of global headwinds. By October, economic growth was faltering, exacerbated by lingering issues from the post-COVID recovery, a crumbling real estate market, and high youth unemployment. As Beijing grappled with these obstacles, two major economic stimulus packages were introduced in quick succession, aimed at reviving the economy and stabilizing its financial system. While the stimulus packages differ in scale and approach, they share a common goal: to provide a lifeline to China’s ailing economy. These measures, while bold and expansive, reflect Beijing’s desire to maintain the country’s growth trajectory, bolster domestic demand, and recalibrate its economic structure. While the October package was primarily focused on short-term relief and immediate stabilizing measures, the November 2024 stimulus plan took a longer-term view. This package aimed not only to stabilize the economy but also to reshape it for future growth. The focus was on increasing fiscal spending, supporting key industries, and implementing reforms that would foster sustainable development. In many ways, the November package was a complementary set of policies designed to work alongside the October measures and create the conditions for a more robust economic recovery. Together, the two stimulus packages mark a significant shift in China’s approach to economic policy—a pivot from crisis management to long-term structural reforms, all while navigating the complex and uncertain global environment.

Monetary Policy Easing

The first major stimulus package, unveiled in October 2024, was designed to address immediate economic challenges, particularly the slowdown in growth and the persistent troubles in the real estate sector. While the package contained several elements, it was particularly notable for its aggressive monetary policy easing and its focus on stabilizing the real estate market. The People’s Bank of China (PBOC), China’s central bank, wasted no time in implementing multiple rounds of interest rate cuts. With growth slipping below expectations, the PBOC aimed to lower borrowing costs for both businesses and consumers. Lower interest rates would make it cheaper for companies to borrow, thus incentivizing investment and production. At the same time, reduced rates would ease the burden on households, making loans for homes and cars more affordable. In addition to cutting interest rates, the PBOC also slashed the Reserve Requirement Ratio (RRR)—a measure that dictates how much capital banks must hold in reserve. By reducing the RRR, the central bank injected liquidity into the financial system, effectively making more money available for banks to lend. These measures were designed to boost credit expansion, stimulate domestic consumption, and stabilize the overall financial ecosystem. Though these monetary steps provided immediate relief, their effectiveness in catalyzing a sustained recovery remained uncertain. Critics argued that while these actions might stabilize the economy temporarily, they wouldn’t be enough to address deeper, structural issues such as deflation and under-consumption, which would require more direct interventions.

Real Estate Market Support

China’s real estate market has been one of the primary drivers of economic growth for years, but it has also been the source of much of the current turmoil. Following the collapse of real estate giant Evergrande in 2021, a wave of bankruptcies swept through the property sector, taking down several developers and leaving millions of homeowners with unfinished apartments. The downturn has also led to falling property values and stagnant demand, which has hurt local government revenues, traditionally fueled by land sales. Recognizing the central role that the real estate market plays in the broader economy, the October stimulus package aimed to revive this sector. Among the most significant measures were relaxed mortgage rules, which eased restrictions on down payments and loan-to-value ratios. By lowering the barriers to homeownership, the government hoped to stimulate demand for housing, thus driving activity in construction and related industries. Additionally, the government allocated increased funding for affordable housing projects. The push to build more affordable housing aimed not only to meet the country’s growing demand for homes but also to stimulate job creation in construction and related sectors. With real estate being such a crucial pillar of China’s economic structure, the government’s intervention was seen as an essential step to preventing a deeper economic slump.

Stabilizing Financial Markets

The Chinese stock market has been volatile in recent months, with investor confidence shaken by domestic economic conditions and external geopolitical tensions. To stabilize the financial markets, the government implemented a series of measures aimed at supporting the stock exchange. These included increasing margin financing, which allows investors to borrow money to buy stocks, as well as promoting share buyback programs. Share buybacks, in which companies purchase their shares from the market, help support share prices and demonstrate confidence in the market’s future. Alongside these measures, the government also introduced reforms aimed at enhancing the oversight of the financial sector. These reforms were designed to improve transparency, protect investors, and bolster confidence in Chinese financial markets. However, while these steps may have provided short-term relief, questions remained about the long-term sustainability of the stock market rally and whether the underlying structural issues—such as sluggish corporate earnings and declining investor sentiment—had been adequately addressed.

Increased Fiscal Spending

The November stimulus package saw a significant increase in fiscal spending, particularly in areas that would directly stimulate economic activity and job creation. A substantial portion of the funds was earmarked for infrastructure investment, focusing on projects related to transportation, energy, and technology. Infrastructure development has long been a key driver of economic growth in China, and the government hoped to use this stimulus to not only create jobs but also to modernize the country’s infrastructure in ways that would benefit the economy for years to come. Alongside infrastructure investment, the government allocated funds to social welfare programs, including healthcare and education. These initiatives were designed to boost domestic consumption by increasing disposable income for vulnerable groups. By improving access to healthcare and education, the government hoped to both alleviate social pressures and support long-term economic stability.

Targeted Support for Key Industries

The government’s approach to industry-specific support was another critical feature of the November package. Recognizing the importance of advanced manufacturing and high-tech sectors in driving China’s future growth, the government introduced a series of incentives and subsidies aimed at boosting these industries. This included providing support for research and development, technology innovation, and digital technologies. With an eye on becoming a global leader in industries like semiconductors, artificial intelligence, and renewable energy, the government sought to bolster China’s high-tech capabilities and reduce its reliance on foreign technologies. Additionally, support was directed toward the renewable energy sector, in line with China’s long-term environmental and energy goals. As the country faces growing pressure to address climate change and transition away from fossil fuels, increased investments in renewable energy infrastructure were seen as a necessary step toward achieving sustainable economic growth. By accelerating the transition to green energy, the government hoped to lay the groundwork for a future that is both economically and environmentally resilient.

Financial Reforms

Another key feature of the November package was a focus on financial market reforms. As part of its effort to liberalize the financial sector, the government moved to allow greater foreign participation in China’s financial markets. This was seen as a way to attract foreign capital, encourage innovation in financial services, and enhance the efficiency of China’s financial system. At the same time, the government continued to strengthen corporate governance practices. Reforms aimed at increasing transparency, improving regulatory oversight, and protecting investors were introduced to enhance confidence in China’s corporate sector. These changes were crucial not only for improving China’s investment climate but also for addressing concerns about corporate accountability, particularly after the corporate scandals that rocked the country in recent years.

Tax Cuts, SME Support, and Rural Revitalization

Beyond the major areas of fiscal spending and industrial support, the November package also included a range of targeted measures aimed at relieving pressure on businesses and households. Tax cuts and fee reductions were implemented to alleviate the financial burden on companies and individuals, while specific support was provided to small and medium-sized enterprises (SMEs). These businesses, which are crucial to China’s employment and economic activity, faced particular difficulties during the economic slowdown, and the new measures sought to make financing more accessible and reduce regulatory burdens. Moreover, the government emphasized rural revitalization, channelling investment into rural areas to improve infrastructure, boost agricultural productivity, and improve living standards. These efforts were aimed at reducing urban-rural inequalities and promoting more balanced economic development across the country.

Conclusion

The October and November stimulus packages represent a two-pronged approach to China’s economic challenges—one that seeks both short-term relief and long-term structural transformation. The October package’s focus on monetary easing and real estate support aimed to stabilize the economy and prevent a deeper downturn, while the November package introduced more far-reaching reforms aimed at reorienting China’s growth model toward innovation, sustainability, and self-sufficiency. As these policies unfold, the effectiveness of China’s economic recovery will depend on the successful implementation of these measures and the broader global context, particularly the potential for renewed trade tensions with the United States and the ongoing challenges posed by the country’s property sector. Yet, by taking a proactive stance through these dual stimulus packages, China is signalling its commitment to both maintaining growth in the near term and transforming its economic structure for future generations. Whether these measures are sufficient to put the economy on a sustainable path remains to be seen, but for now, they represent China’s best hope for a revival.

References

1. China Briefing – Decoding China’s Recent Economic Stimulus Package: What Investors Need to Know
2. Washington Post – China unveils $1.4 trillion stimulus in effort to boost the flailing economy
3. CNBC – China announces $1.4 trillion package over five years to tackle local governments’ ‘hidden’ debt
4. Al Jazeera – Is China’s new stimulus enough to revive its economy?
5. Image by Freepik