The economic recovery in China is at a “critical stage,” the president said today Xi Jinpingat a time when real estate woes, debt and sluggish consumption are weighing on growth in the world’s second-largest economy.

“Efforts should be made to increase domestic demand and create a mutually virtuous environment for consumption and investment,” China’s president said during the Politburo meeting, according to a report released today by the China’s state media, on the country’s economic directions for 2024.

“Precautionary fiscal policies should be strengthened appropriately,” the Chinese president insisted.

This wording seems to advocate targeted measures rather than a massive support plan that some economists have been calling for in recent months and which would increase the country’s public debt.

The Chinese economy’s promising early-year recovery from the Covid epidemic is now being undermined by a lack of Chinese confidence in the future that is hitting consumption, rising youth unemployment and subdued international demand that is weighing on Chinese exports.

A significant brake on economic activity is also put by the unprecedented crisis in the real estate sector which has left companies on the verge of bankruptcy and unfinished residential projects. Property sector activity accounts for a quarter of GDP and is an important source of income for local communities, which are financially drained by the huge spending of the past three years to deal with Covid.

Ratings agency Moody’s on Tuesday downgraded the outlook on China’s credit rating from “stable” to “negative” due to its debt levels and sluggish economic growth.

“We must defend ourselves resolutely against systemic risks,” the Chinese leader stressed at a time when the risk of bankruptcy of some companies in the real estate sector (Evergrande, Country Garden…) threatens the financial system and social stability.

To support the real estate sector, Beijing has in recent months multiplied support measures, but the results remain weak.

China has set a target of 5% growth this year, a target difficult to achieve, according to some economists.

Last year, GDP grew by 3 percent, far short of the official target of 5.5 percent, and one of the slowest growth rates recorded in China in four decades.