China has unveiled a stimulus plan to help spur demand for automobiles and electronics as escalating tensions with the US threaten to hurt the world’s second-biggest economy.
The policies do not include any new spending from the central government, but encourage local governments to provide support if they have the capacity.
China is trying to support an economy, which is slowing due to the effects of weak domestic demand and a worsening dispute with the US, the largest export market. The government is constrained in how much money it can offer after announcing large tax cuts earlier in the year, which may be a factor in why the announcement was less generous and expansive than a leaked earlier draft.
“The measures may not be enough to reverse the slowdown in consumption growth as the lack of compulsory spending could weaken implementation,” said Xia Le, Hong Kong-based chief Asia economist at Banco Bilbao Vizcaya Argentaria SA. The authorities have been keeping stimulus targeted so far because they do not want to put pressure on the currency or trigger debt-related risks, he said.
Consumption-support policies by themselves would not be enough to lift the domestic demand – the government needs to ease uncertainties about economic growth and incomes to effectively stimulate people’s spending, Xia said.
The NDRC is focusing on auto, home appliances and consumer electronics to cement the trend of upgrading in those industries, according to its statement. It aims to form a stronger domestic market to realize high-quality development.
The government will promote the next-generation 5G mobile phones, encourage research and development into smart household products using artificial intelligence and the Internet of Things, and push consumers to upgrade their appliances and discard energy-inefficient products. Appliance makers are also encouraged to enhance collaboration with real-estate developers.
China’s home-appliances manufacturers, such as Gree Electric Appliances Inc. of Zhuhai and Midea Group Co. have faced challenges with fierce competition in the sector and the country’s stagnant property market growth. Domestic sales in the industry grew 1 percent in 2018, easing from previous years, according to Midea’s annual report.