Adhering to reforms can help Beijing pop ‘Peak China’ bubble

Since 2023, as China’s economic recovery from the Covid-19 pandemic has shown protracted weakness, a “Peak China” theory has emerged and reached its zenith during the second and third quarter of 2024. On September 26 last year, President Xi Jinping chaired an unexpected meeting of the Communist Party’s Politburo to discuss economic work.

After the meeting, the government enacted a series of stimulus policies aimed at addressing the causes of the country’s economic downturn. This was confirmed by Premier Li Qiang at the opening of this year’s National People’s Congress (NPC) in a speech outlining a package of measures intended to help hit a growth target of around 5 per cent.

One argument from sceptics is that China’s fiscal policy has not been expansionary enough, leading to a contraction in the economy and a downward spiral in prices. However, the fiscal stimulus package unveiled at this year’s “two sessions” is unprecedented, including a 4 per cent deficit-to-GDP ratio and a government deficit of about 5.66 trillion yuan (US$782 billion), an increase of 1.6 trillion yuan from last year.