China must unleash a “more significant” monetary stimulus beyond its recently released growth plans to dispel market fears of deflation and boost domestic demand amid an intensifying trade war with the United States, a senior economist has warned.
The 30-point strategy to boost consumption announced by the Chinese government on Sunday is a positive step, but further efforts are necessary, said Xu Dingbo, associate dean of the China Europe International Business School (CEIBS), at a conference in Beijing on Tuesday.
Consumption is driven by expectations, so “in China, we have to change the expectation from deflation to moderate inflation”, Xu said.
China’s consumer price index, a key gauge of inflation, fell 0.1 per cent year on year during the first two months of the year, far below Beijing’s 2025 control target of 2 per cent.
According to Xu, there is now consensus among the central government, academic community and business sector that Beijing needs to take action to bolster market confidence and support local governments in managing their debts.
He stressed that “spending is pushed not by the central government, but by local governments”, whose financial status directly affects public servants’ salaries and the operations of many state-owned enterprises.
