Opinion | How China’s property and debt crises limit policymakers’ ability to revive the economy

Zhu, a former deputy managing director of the International Monetary Fund (IMF) and a former deputy governor of the People’s Bank of China (PBOC), is no casual observer of the Chinese economy and its role in the world. He is also one of my oldest and wisest friends in China, and I have learned to take his views very seriously.

Zhu’s prediction has proven to be accurate. Despite a promising snapback after the abrupt zero-Covid exit, China’s economic rebound has faltered in recent months. Many had hoped the government would respond to this shortfall and introduce another large-scale stimulus package, as is its usual practice.

Yet a series of announcements in mid-August from the PBOC, the China Securities Regulatory Commission (CSRC) and the State Council has dashed those hopes. The PBOC guided short-term lending rates only marginally lower, while the CSRC focused on enhancing market mechanisms, including longer trading sessions, reduced brokerage fees and support for stock buy-backs.

The State Council, for its part, scrambled to slow the carnage in the property sector as Country Garden faces liquidity pressures and China Evergrande filed for bankruptcy protection in the United States. For a country that has long prided itself on implementing proactive policies to pre-empt economic pressures, the latest stimulus measures are surprisingly reactive.

The question is why. Zhu, in his remarks during the WEF panel, pointed to China’s debt problem. By now, of course, the broad dimensions of China’s debt problem are well-known.