Goldman Sachs Group has revised its projections for China’s economic growth, stating that the country has limited options for boosting stimulus. The bank has lowered its estimates for China’s gross domestic product (GDP) growth in 2023 from 6 per cent to 5.4 per cent. According to a media house, economists at Goldman Sachs, including Hui Shan, believe that any forthcoming policy measures will not surpass those implemented during previous economic downturns, including the measures taken in 2020.
Recent data for the month of May indicated a weakening recovery, prompting the country’s central bank to reduce key policy interest rates in an effort to lower borrowing costs and improve market sentiment. On Friday, China’s State Council called for more aggressive policies to support the economy, stating that new measures were being considered for timely implementation.
However, Goldman Sachs anticipates that China’s stimulus efforts, particularly in the areas of property and infrastructure, will likely be targeted and moderate. This approach is influenced by factors such as a declining population, high levels of debt, and President Xi Jinping’s emphasis on curbing property speculation.
The report from Goldman Sachs highlighted that relying on traditional methods like property and infrastructure to drive a strong economic rebound would contradict the leadership’s focus on achieving “high-quality growth.” The bank’s economists stated that persistent growth challenges and constraints from economic and political considerations would limit the effectiveness of significant stimulus measures.
There were expectations that the central government might issue special-purpose bonds to finance projects. However, Goldman Sachs economists do not anticipate the issuance of such sovereign bonds, as they have only been sold three times in the past during particularly difficult periods, including the 2020 pandemic and the 1998 Asian Financial Crisis.
Additionally, the economists do not expect the government to initiate another round of shantytown redevelopment similar to the one in 2015. This previous initiative involved injecting central bank funds into the property market to fund urban renewal and compensate households affected by demolition. That led to a surge in property prices and sales.
Instead, Goldman Sachs predicts that the government will expedite the issuance of local government special bonds, primarily for infrastructure construction. Authorities may also continue to relax property policies, such as reducing down-payment requirements, lowering mortgage interest rates, and lifting purchase restrictions in top-tier cities.
Officials are placing emphasis on bolstering industries that are viewed as catalysts for economic expansion, such as high-end manufacturing and the development of new energy vehicles. While supportive policies such as easier lending, tax cuts, and subsidies are likely to persist or even increase, their impact on GDP growth is expected to be limited as these measures have already been in place for years, according to Goldman Sachs.
