China’s New Economic Stimulus Plan

Investing News

As U.S. Fed Chair Jerome Powell prepares to discuss monetary policy to try and tame inflation that could slow the U.S. economy, Chinese officials outlined new stimulus measures to give the world’s second-largest economy a boost.

China’s State Council rolled out a trillion yuan package in economic stimulus. The latest $146 billion in assistance will target infrastructure, property, and private business. The initiatives are expected to cover a range of targets the government has identified as in need of support. Among the targets were state banks that were given an additional $44 billion to finance infrastructure projects.

Local governments were given permission to use more than $73 billion to be used to reduce financing costs. As electricity firms face challenges sparked by droughts and heat waves, they were also given $29 billion to ensure adequate energy supplies. 

The spending comes after Beijing had unexpectedly lowered two of its key interest rates, stepping up efforts to shore up growth, amid COVID-19 lockdowns and a deep property slump. Last month, Chinese leaders dropped their annual growth target of around 5.5%, after growth of 2.5% in the first half of the year.

“China’s struggle to maintain growth even as it stimulates its economy through various monetary policy measures is clearly not convincing investors that it is working. Shares of the iShares MSCI China ETF (MCHI) are vastly underperforming the iShares MSCI Emerging Markets ex-China ETF (EMXC) over the past year,” said Caleb Silver, Editor-in-Chief of Investopedia.

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