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China's Economic Woes: Will Xi Jinping’s Emergency Intervention Work?



China's economic woes have reached a critical juncture, prompting President Xi Jinping to consider an emergency intervention plan totaling $298 billion. The move comes in response to the country's stock market hitting a five-year low, with the CSI 300 Index losing a fifth of its value over the last nine months and reaching its lowest point since the beginning of 2019.

 

Premier Li Qiang, recognizing the severity of the situation, has called for "forceful" measures to address the crumbling economy. The NASDAQ Golden Dragon China Index has also experienced a six-day decline, contributing to a climate of diminishing investor confidence.

 

The economic downturn can be traced back to a property crisis initiated by the collapse of Evergrande, a major property giant, at the end of 2021. Li convened a meeting with China's cabinet, emphasizing the urgency of implementing measures to control the situation. The State Council, following the meeting, stressed the need to enhance the investment value of listed companies and improve macro policies to stimulate the nation's economic recovery post-pandemic.

 

Despite an initial surge in China's stock market following the government's decision to lift its zero-Covid lockdown policy, the momentum was not sustained. In an effort to boost the market, China's sovereign wealth fund invested $1.24 trillion in exchange-traded funds and bank shares last year. Additionally, The People's Bank of China injected another 733 billion yuan into the financial system.

 

Economists, however, remain skeptical about the efficacy of these measures. Michael Hirson of 22V Research highlighted that China's economic challenges are deep-rooted, with macroeconomic issues overshadowing technical concerns. He pointed out, "In an environment of weak private sector demand and prolonged deflation, it is hard to excite investors about the outlook for Chinese companies to grow revenue and profits."

 

Adding to China's economic woes is a significant demographic challenge. The birth rate has been on a decline, and the working-age population is shrinking. Last year, the total population decreased by two million, and over a fifth of the population is now aged 60 or over.

 

As President Xi Jinping contemplates a massive emergency intervention plan, the world watches to see if these measures can stem the tide of China's economic decline and restore confidence in its financial markets. The outcome of these efforts will undoubtedly have repercussions on the global economic landscape.

 

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