BLOG: China stimulus: Short-term benefits versus long-term challenges

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson.

At the end of 2024, Beijing ditched “prudent” for “moderately loose” monetary policy—raising hopes of a growth reboot.

But I warned: deep structural issues and growing global trade tensions would blunt any gains.

Now, three months on, the most sweeping consumer stimulus in 31 years has landed. Key measures include:

• Budget deficit raised to 4% of GDP (31-year high)
• 13% increase in local government borrowing
• 30% increase in long-term bonds to fund consumer trade-ins
• RMB 500bn ($70bn) injection into state-owned banks
• Wage increases, childcare subsidies, rural income support
• Expansion of social benefits
• Backing for AI and emerging sectors

Sounds bold—but deep-rooted problems persist:

• Housing wealth down ¥25tn ($3.4tn)
• Youth unemployment above 10%
• CPI fell 0.7% in Feb; PPI deflation for 29 consecutive months
• Consumption grew just ~5% in 2024 (vs ~8% pre-pandemic average)

As Michael Pettis notes, China would need:

• Higher wages (hurts exports)
• Higher taxes (hurts investment)
• Stronger RMB (hurts trade)
  To hit the 6–7% consumption growth needed for 4–5% GDP.

Then there’s demographics:

• Population may fall to 1.1bn by 2050, under 400m by 2100
• Fertility rate: 0.8
• Some estimates say 2020 population was 130m lower than reported

And rising trade protectionism:

• China accounts for 40% of global resins demand
• Dominates 600+ global export categories
• Trade surpluses with EU, Japan, and rest of Asia are swelling
• Retaliation and reshoring are accelerating

On AI:

• Stock market rally, but under 20% of adults own shares
• Investment is concentrated; automation risks job loss
• Consumer sentiment remains cautious

PE Spread & Margin Reality Check:

• Jan–Feb 2025 average PE spread: $294/tonne
• Post-NPC average (to 14 March): $300/tonne
• Supercycle average (1993–2021): $532/tonne
• NEA PE margin since 2022: $7/tonne (vs $462/tonne during Supercycle)

Conclusion: Short-term rally? Maybe.
Long-term recovery? Not without deep reform.

• Weak consumption
• Property slump
• Demographic drag
• Trade backlash

Let’s see how spreads and margins evolve over the next 12–18 months.

Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.