Goldman Sachs Group Inc became the latest bank to cut their forecasts for China’s economy, citing limited options to boost stimulus.
Analysts at Goldman lowered their estimates for China’s GDP growth this year to 5.4 percent from 6 percent previously, a report dated on Sunday showed.
Any upcoming policy easing is unlikely to exceed those implemented in previous downturns including 2020, economists including Hui Shan (閃輝) said in the report.
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Property and infrastructure stimulus would probably be “targeted and moderate” given the shrinking population, elevated debt levels and Chinese President Xi Jinping’s (習近平) call for curbing property speculation, they wrote.
“Going down the same old route of using property and infrastructure to engineer a strong economic rebound would be inconsistent with the type of ‘high-quality growth’ that the leadership has been emphasizing repeatedly,” the report said.
Expectations for more policy support including government spending to pay for infrastructure and also property easing measures were rising last week, with some analysts floating the possibility that central government might issue special-purpose bonds to fund projects.
Data released last week showed the recovery was weakening last month and the central bank cut key policy interest rates to lower borrowing costs and boost sentiment.
The Chinese State Council, which is Beijing’s Cabinet and coordinates policy among central government ministries and the central bank, on Friday called for “more forceful” policies to support the economy, saying new measures are being studied and would be adopted in a “timely manner,” although it did not release a timeline or details.
“We judge that growth headwinds are likely persistent while policymakers are constrained by economic and political considerations in delivering meaningful stimulus,” Goldman economists said.
They do not expect the central government to issue special sovereign bonds, as these have only been sold three times in the past during particularly difficult periods including the COVID-19 pandemic in 2020 and during the Asian Financial Crisis in 1998.
The government is also unlikely to launch another round of shantytown redevelopment like it did in 2015, they wrote.
That policy injected central bank money into the property market to pay for urban renewal and to compensate households whose homes were demolished as part of that. It led to a surge in property prices and sales.
Instead, the government might accelerate the issuance of local government special bonds, which are mainly used for infrastructure construction, Goldman analysts said.
Authorities might also continue to ease property policies including lowering down-payment requirements, cutting mortgage interest rates and removing purchase restrictions in top-tier cities, they said.
While supportive policies such as easier lending, tax cuts and subsidies are likely to continue or even increase, the effect on GDP growth is likely limited because these plans have already been in place for years, Goldman said.
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