MNI BRIEF: Interest Rate Cut Needed To Boost Domestic Demand

China needs to continue lowering interest rates and increase fiscal spending to rapidly address weak demand and secure nominal GDP growth above 5% in 2025, China Finance 40 Forum senior researcher Zhang Bin said Saturday at the Bund Summit in Shanghai.

Zhang, who is also deputy director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, noted that given current low price levels and weak corporate profits, real interest rates remain elevated. Sustained reductions in real borrowing costs would help rebalance savings and investment, he said.

He argued government spending growth must outpace nominal GDP growth because in an environment of insufficient demand, public expenditure is essential to counter market failures.

In the near term, boosting investment — particularly public investment — remains the primary lever for stimulating domestic demand, Zhang said, pointing to significant potential in urban renewal and redevelopment projects.

On the consumption side, upgrading the services sector offers considerable room for expansion, he added.

If China can quickly strengthen its domestic market, the yuan could appreciate further as it is currently undervalued, he argued. (See MNI: Relaxed Policy To Drive PBOC Over Next Five Years - Advrs)