China’s Pulling Out The Stops To Get Its Consumers Spending Again

What’s going on here?

With its economy still sagging, China is pulling out the stops to get consumers spending again.

What does this mean?

This is just the latest round of stimulus from the world’s second-biggest economy. Previous moves haven’t had quite the impact the government had hoped – and now, with exports at risk of a slowdown, policymakers are doubling down on incentives to boost spending and business investment. There are a few things on the table. Shoppers can snag subsidies on home appliances and phone, tablet, and smartwatch purchases of up to 6,000 yuan ($818) this year. A popular trade-in program for electric and hybrid cars is getting another spin, having fueled over 3.7 million auto sales last year. Plus, farmers and factories can get money back on new industrial equipment.

Why should I care?

For markets: No fireworks, only sparklers.

China has been taking a bit-by-bit stimulus approach, as it seeks to move away from its old debt-driven growth model and toward a more self-sustaining one. But the slow road is not without risk. Weak consumer confidence, a lingering property crisis, and shaky business conditions are dragging down prices, leaving markets stuck in neutral. And without bolder moves, global investors are likely to stay away – squashing hopes of a stronger recovery.

The bigger picture: Stay away, Japan.

China could be heading into a "balance sheet recession", where businesses prioritize paying back debt over spending and investing – a situation that could lead to a decades-long Japan-style spiral of weak demand, falling prices, and meager growth. That's reflected in the country's bond yields hitting record lows. They’ve fallen below levels seen during the pandemic panic and the global financial crisis.