The Power of the Purse: China Pleads For Spending

Pan Gongsheng, governor of the People’s Bank of China and secretary of the Chinese Communist Party Committee, recently gave a whatever-it-takes speech.

Pledging to cut interest rates, loosen lending standards, and support innovation, he said the central bank would stop at nothing to make sure China continues to prosper amid expectations of a global slowdown – that he blamed on President Donald Trump’s tariffs on Chinese goods that amount to as much as 45 percent, the South China Morning Post reported.

“We will utilize a range of monetary policy tools, including open market operations, to ensure ample liquidity and align money supply and social financing growth with economic and inflation targets,” he said.

However, in what might be a surprise to Americans and Europeans struggling with high prices, Gongsheng is confronting the opposite problem: deflation.

As Bloomberg explained, demand and prices of consumer goods in China have not recovered to post-pandemic levels, leaving many businesses in the lurch as consumers tightened their wallets. The same consumers have lost around $1 trillion in savings in the country’s real estate bust, according to CBS News’ 60 Minutes. American tariffs promise to squeeze more money out of the system.

The Chinese state appears ready to make nice with those on its blacklist for help.

Chinese President Xi Jinping recently appeared at a symposium with billionaire Jack Ma, founder of the Chinese online marketplace and service provider Alibaba. Ma “withdrew from public life” in 2020 after his worldwide popularity potentially made him a rival to Xi’s authority. And Alibaba was given a record fine. Now, Xi is asking Ma to help drive more economic growth to pump more money into the sputtering economy.

“China’s Communist Party has a history of purging and then welcoming back senior officials,” wrote the Economist. Now, however, he seems to be welcome once again.

In one sense, Xi’s economic plans unveiled a decade ago, which aimed to expand China’s reach in technology and establish world-class high-tech companies like Huawei, or Chinese artificial intelligence firm, DeepSeek, have been wildly successful. But Xi is still pursuing state-led, export-oriented industrial policies while ignoring reforms that might expand economic prosperity, wrote World Politics Review.

These problems spill onto the streets. Protests in China increased by more than 20 percent in the last quarter of 2024 compared with a year earlier, according to the Christian Science Monitor, citing figures affiliated with Freedom House, a US-based human rights advocacy group. Of the 7,000 incidents tracked since 2022, most stemmed from “economic grievances such as unpaid wages, housing disputes, and confiscation of rural land by local governments.”

Xi insists, meanwhile, that gross domestic product will grow by around 5 percent this year, noted British think tank Chatham House.

That won’t happen unless everyone starts importing more Chinese goods and Chinese consumers spend money to hit those targets.

Analysts said the newly released 30-point plan to increase domestic consumption was light on specifics and will do little to fix China’s bigger problems, namely deflation, unemployment, and low household income.

“The basic takeaway is that these are very incremental and limited steps,” Logan Wright, a partner at Rhodium Group, a research group focused on China’s economy, told the Washington Post. “These are structural problems that are not easily solved with a few subsidies here and there.”