China launches $40 billion stimulus to boost economy

The Chinese government is launching a $41 billion spending program to boost its struggling economy. This plan includes new childcare subsidies, higher wages, and better paid leave. Officials hope these measures will encourage people to spend more money. Recent data shows retail sales in the first two months of 2025 grew by 4%, which is a positive sign. However, home prices continue to decline across the country, except in cities like Shanghai. China is facing deflation, where prices are falling instead of rising. This situation has persisted for 18 months. While lower prices might seem good for consumers, falling consumption suggests deeper economic problems. When people do not spend, businesses earn less, leading to slower hiring and stagnant wages. The country is already dealing with slow growth due to a property market crisis and high debt. Chinese consumers are hesitant to spend, feeling uncertain about their financial future. This lack of confidence is concerning as the country aims for a 5% growth this year. President Xi Jinping wants to boost domestic spending to help the economy cope with the negative effects of tariffs from the US. Beijing recently announced new social welfare investments, including increases in minimum pensions, to help stimulate consumer spending. Critics say more concrete support is still needed. Currently, many low-paid migrant workers do not have access to full social benefits, leaving them vulnerable during economic downturns. The decline in consumer spending has been linked to the property market's struggles. Many Chinese households see their homes as primary assets, and uncertainty in this sector affects their willingness to spend. Experts believe consumption may not recover until the property market stabilizes. China's long-standing saving culture also complicates efforts to stimulate spending. Rising costs of living, particularly for families, have made many hesitate to spend. In 2024, Chinese households saved 32% of their disposable income, a high rate compared to western nations like the US. Historically, major shopping events in China, like the Double 11 sales, drew massive spending. However, recent years have shown a shift as consumers became more cautious with their finances. High-end brands have reported sales declines, and online discussions often focus on budget-friendly alternatives instead of luxury items. China's economic structure has heavily relied on exports and low-wage labor. With countries now looking to diversify supply chains, the reliance on exports is decreasing. Local governments are also facing high debt levels. President Xi Jinping emphasizes the importance of making domestic demand a key driver of economic growth, especially with China's large population.