After having announced, at the end of September, several measures intended to soften the consequences of the real estate crisis which hurts the country (reduction of the personal contribution and of the real estate loans rates and of the banks required reserves) and offered financial supports to local authorities for around 140 billion dollars, the Chinese government has just decided to make more accommodative the monetary policy for the first time for 14 years. It has left to understand that a support program of the household demand will be put into place in 2025. The Chinese president Xi Jinping, when he hosted in Beijing a meeting of the leaders of the main international institutions, has confirmed that the country will was to remain the world growth engine.

The objective of a 5% growth which had been assigned for 2024 is not far from being hit because during the last four quarters, it has reached 4.6% year-on-year. It is by large higher than what the developed countries know, the United States with around 3% and especially Japan and Europe with much less than 2%. But it is very inferior to what China had known during its “Glorious Thirties”, which had allowed it to becoming the second economy in the world. Above all, what the commentators will not miss to mention, it is under the official objective to which the authorities attach a lot of importance.

We so expect from the Chinese leaders they act in order the country is going closer to that objective and guarantee in the future a strong growth, but without taking back the past levels which belong to a bygone period. The near absence of inflation, with the last price increase of 0.2% year-on-year, generates the worry that the country follows the same trend that the one Japan took down thirty years ago with a lasting growth weakening. This worry has also constituted a point encouraging Chinese authorities to proceed to its first monetary softening measures.

The true stake so is not to reach or not on the short term the 5% objective, even if this one has a symbolic character for the authorities, but to rethink the growth model the recent evolutions have put into question. It was based on two pillars: the investment in infrastructures and in housing and the construction of plants assigned to supply the country and the world in manufactured goods. The Middle Empire so became the “factory of the world”. It also had used a very restrictive demographic policy with the principle of the “single child”.

This model has found its limits. The Chinese companies passed from the sub-contractor or the supplier status to the competitor one thanks to the formation of hundreds of thousand engineers which have given to the country a high capacity of innovation. But that has given rise to an increase of protectionist measures which start to threat the exportations prospects. The demographic policy has leaded to a fast and lasting ageing of the population which has been harmful for household consumption and home building and which has provoked a deep real estate crisis. These structural factors had been moreover aggravated by the very restrictive confinement policy adopted during the Covid-19 pandemic.

Beijing so must invent a new growth model which does not reduce itself only, after the first conjunctural measures regarding the monetary policy and the support of the real estate sector, to interest rates reductions and credit facilities. The true turnaround could then occur in 2025 with a policy supporting the household level of life which would favor goods and services consumption. The tools are not missing: wages upgrading, taxes reductions, social benefits increase. A near zero inflation which allows to having very low interest rates and a feeble cost of the public debt charge along with the huge currency reserves accumulated by the current accounts surplus offer to the State the tools to finance this revival policy. That will not affect the Yuan stability, to which the authorities are committed, because this occurs in an environment of a general reduction of the major central banks rates.

That action is all the more necessary that the contribution of the foreign trade to growth will not be as high as in the past. The instauration of high tariffs in the U.S., and at a lower extent in Europe, for some sectors will unavoidably weight on the trade balance. That will also constrain large Chinese companies to adopt new investment strategies. To circumvent these border restrictions, they can de-localize supply chains in the countries where the market is growing. That will affect employment in China, where we already note an increase, in the big cities, of the young people unemployment, which was unimaginable ten years ago.

The appearance of new growing markets in the South-East Asia, in the car sector for instance, constitutes another motive of de-localization because the demand is strong there and the workforce cost is now inferior to that one in the carmakers origin country. The contribution of the exports to growth in the future so will be, it too, inferior to what was observed in the past even if, until now, it remains significant. The foreign trade volume has increased by 4.9% year-on-year during the first eleven months of the year with exports rising by 6.7% to reach 3 200 billion dollars. The trade with the countries belonging to the Belt and Road Initiative, has, itself, risen by 6% against only 4% with the U.S. This spread would so becoming larger in the future.

The expected support in favor of household level of life, if it is enough, will have two consequences. It will progressively allow to having a progressive rebound of the real estate sector. The inventory of unoccupied homes will diminish and will allow the homebuilders which are still alive, to launch new programs. It will profit to the services sector which is becoming a priority for the Chinese authorities and which will be a source of jobs creation in the great urban centers.

This reorientation of the Chinese economy will go along with a reduction of the competitive pressure the major Chinese companies are exercising on their competitors when the local demand is not enough and that the tariffs would soften only at a limited level because these companies are able to put into place strategies to circumvent them. The consumption revival about which Chinese authorities are thinking so have a double effect.

Through the transformation of the country economic model, it would contribute to a better sharing of the wealth in the population and it would reduce the risk of social unrest which could appear in some regions where unemployment would become more and more important. It would profit to Chinese enterprises which are the most dependent of the domestic market. But that new economic policy will also be a factor of appeasement in the international tensions because the Chinese revival, in making easier a rebalancing of the trade exchanges will also benefit to foreign companies and to financial markets.

Without going to an immediate economic reconciliation between Beijing and the large Western economies, we can expect the resumption of a constructive dialogue leading to decisions where everybody will be the winner. The revival of the Chinese economy so is not only a simple domestic issue and it is why everybody in the world is expecting it with impatience.