China Needs a Stimulus Package to Boost Consumer Confidence, Says LSE Professor

China’s economic recovery continues to face headwinds, leaving many wondering about the best path forward. In a recent interview with CNBC, Keyu Jin, a professor at the London School of Economics, argued that a government stimulus package is crucial to jumpstart the economy and restore consumer confidence.

In an interview with CNBC, Jin acknowledged the challenges China faces, stating, "China's economy is still in recovery mode and is also in transition. So, everything is just going to take time.” She noted that the country was late to emerge from pandemic lockdowns and that, unlike many other nations, China never provided substantial stimulus packages to its citizens.

This lack of support, Jin believes, has contributed to a current "enormous aggregate demand deficit." She emphasized that the government needs to address this cyclical problem rather than solely focusing on long-term structural reforms. "It's not just structural problems,” Jin explained. “This lack of demand, you need to give a big stimulus package.”

The interview host pointed to the psychological impact of falling prices on consumers, suggesting a "deflation situation" could be developing where people delay purchases in hopes of even lower prices.

Jin acknowledged that falling prices were a concern but argued that the situation was improving. "I think we really exited out of that particular cycle,” she stated, adding that she doesn’t believe China is caught in a deflationary trap like Japan experienced.

Instead, Jin pointed to a lack of confidence as the primary obstacle to consumer spending. With anxieties surrounding job security and the housing market, people are hesitant to spend, even with rising wages.

"They need to feel more certainty in [being] able to, in order to be wanting to spend on the big-ticket items," Jin concluded.