China is assembling an economic bazooka, piece by piece

China’s leaders have been drip-feeding support into their ailing economy for three years. This week, they jacked up the dose.

A major injection of stimulus from the central bank—and promises of more government support from the Communist Party’s top decision-making body—mark the beginning of a more muscular approach from Beijing to righting the economy after months of hesitancy, economists say.

Most Read from The Wall Street Journal

It electrified the markets, sparking a seventh straight day of gains on Shanghai’s stock market that has pushed the benchmark index up 11%—its biggest such run in four years—and into positive territory for the year.

The new urgency from policymakers in Beijing follows a torrent of economic warning signals: shrinking tax revenues, tumbling prices for homes and industrial goods, slowing retail sales and sputtering factory output and investment.

“After the pandemic, we’ve felt that making money isn’t that easy,” said Liu Ailing, a 47-year-old homemaker in Beijing. Liu said she is heartened by some of the measures rolled out this week, especially a planned reduction in mortgage rates for homeowners, which she hopes will counter the rising cost of educating her third-grade daughter.

Yet tempering the stimulus hopes are still-unanswered questions about how much Beijing is willing to spend—and especially how much it is prepared to put in the pockets of China’s beaten-down consumers.

Officials have also not yet spelled out how they plan to bring the country’s long-festering real-estate crisis to an end, a critical task if the economy is to find a more solid footing, economists say.

Other big problems persist. China’s workforce is aging and shrinking while bulging industrial capacity is fueling trade tensions overseas and squeezing profits and prices at home. Local government finances are under severe strain and banks are feeling the pressure of bad loans and crushed profit margins. The country’s private sector has been cowed by crackdowns on once-flourishing sectors such as technology and education.

The upshot is that even if Beijing can bring about a short-term recovery, China faces a prolonged slog of slower growth ahead as it confronts these and other problems that built up during the years of its go-go expansion.

“China is in a bit of a systemic pickle,” said George Magnus, a research associate at the University of Oxford’s China Center and a former chief economist for UBS. “It is not because interest rates are too high, or mortgage rates are too high, or down payments on second homes are too high,” he said, referring to moves by the central bank to lower all three this week. “That is not the reason China is in this economic hiatus.”

Chinese state media on Thursday said the Politburo, chaired by leader Xi Jinping, devoted its September meeting to scrutinizing the economy. Economics is typically discussed during its April, July and December meetings, providing a hint of the seriousness officials are devoting to remedying the economy’s malaise.

The Politburo’s readout was short on detail, but the officials, led by Xi, pledged more fiscal and monetary support for the economy and promised more action to stabilize the property sector. The forthright tone and out-of-sync timing signal a new sense of urgency, HSBC economists Jing Liu and Erin Xin wrote in a note to clients.

“The tide has turned: Economic growth is the priority,” they said.

China’s benchmark Shanghai Composite Index rose 3.6% to a three-month high, with real estate and consumer stocks leading the way. Hong Kong’s benchmark Hang Seng Index, home to some of China’s biggest listed companies, finished 4.2% higher.

The gathering followed a fusillade of policy support from the People’s Bank of China on Tuesday. The package, which included rate cuts and a pledge of billions of dollars in support for China’s ailing stock markets, cheered investors with its breadth.

China’s economy was long the engine of global growth—its massive stimulus pulled the world economy out of the financial crisis of 2008-09. Its industrial might proved essential in providing the world with the medical supplies it needed during the pandemic.

The past few years have been tougher. Regulators clamped down on perceived financial excesses by property developers in August 2020. China Evergrande Group, at the time the biggest of those developers, defaulted on its debts the following year, ushering in a property crisis that is still dragging on.

Meantime, the U.S. economy has notched year after year of robust growth despite painful inflation and a sharp rise in interest rates.

“It’s the U.S. economy that is leading the way now. China is lagging, it’s struggling,” said Mark Zandi, chief economist at Moody’s Analytics in New York.

Chinese officials set a growth target of around 5% for this year. But as the months passed, that goal began to look increasingly out of reach, prompting a flurry of downgrades from Wall Street banks.

At the same time, the economy has grown increasingly lopsided, with its factories benefiting from buoyant exports and a gusher of government-directed investment even as consumer spending languishes.

Foreign firms have been feeling the downdraft. Mercedes-Benz and its Bavarian rival BMW cut their earnings guidance this month, blaming weak spending by affluent consumers in China. Luxury brands such as handbag makers LVMH Moët Hennessy Louis Vuitton and Kering have similarly reported sliding sales in the crucial Chinese market.

In China, the consumer gloom can be seen at dairy farms, restaurant chains and shopping malls. Temu owner PDD Holdings in August sought to tamp down shareholders’ expectations of never-ending profit growth, saying more upmarket rivals were increasingly eating into its market by luring bargain-conscious Chinese shoppers with cut-price deals.

Tang Palace, which runs chains of seafood restaurants and teahouses throughout China, said customer numbers and average spending at its restaurants declined in the first quarter compared with a year earlier, pulling down revenue and profit. The company’s shares in Hong Kong are down 55% since the start of the year.

“In the past, there was a year-end bonus, but now there isn’t one,” said Xi Xi, a 28-year-old office worker in Beijing. Since her income hasn’t returned to prepandemic levels, Xi, who works in the cultural sector, said she scours social-media platforms for discounts on coffee, milk tea and restaurant meals.

Many economists say giving consumption a greater role in China’s investment-heavy economy would put it on a more sustainable growth path. Doing so would require big economic reforms, such as expanding healthcare and the social safety net, which are politically unpalatable to Chinese leaders like Xi, who finds Western-style “welfarism” anathema to his goal of turning China into a technological colossus that can stand up to the U.S.

Even boosting consumption in the short term has proven difficult, given Chinese households’ high propensity to save rather than spend. Uncertainty over jobs and earnings has heightened that impulse.

Last month, Ting Lu, chief China economist at Nomura, suggested that Beijing boost consumption by offering targeted support for poorer groups, reducing their need to save and encouraging more spending.

He suggested the government boost pensions for farmers, migrant workers and other low-income groups, fund better medical insurance for the lower-paid and provide cash subsidies to promote childbirth. He put a price tag of about three trillion yuan, equivalent to around $426 billion, on his plan.

Yang Ke, who works for an internet company in Beijing, said she’s grown more cautious about big-ticket spending as the outlook for her industry grows dimmer. Any extra cash she would get from lower interest rates will likely go toward paying down her mortgage. “I’d rather save more and pay off the loan,” she said.

Write to Jason Douglas at jason.douglas@wsj.com and Jonathan Cheng at Jonathan.Cheng@wsj.com

Most Read from The Wall Street Journal