While facing economic woes and pandemic restrictions, Francis Lun, who runs a brokerage in Hong Kong, experienced a relief with a soaring stock market after China’s top leaders announced measures to support the country’s struggling economy. The Hang Seng Index rallied more than 18% since then. The rally’s continuation, along with the benefits spreading to the real economy, is uncertain unless further measures are taken. The focus has been on monetary policy, but analysts suggest deploying fiscal policies to boost consumer confidence and reflate the economy, similar to Europe’s “whatever it takes” moment.
Ray Dalio, founder of Bridgewater Associates, believes that China needs to do more to address the crisis, suggesting a potential “whatever it takes” moment for the economy. The National Development Reform Commission plans to announce further policies to boost the economy. The Chinese leadership seems to be decisively moving, as seen in the rare joint press conference between financial chiefs to address the ongoing economic challenges transparently. Steps such as interest rate cuts, reserve requirement reductions, and support for the property sector indicate a shift towards revitalizing the economy.
As part of a fresh fiscal stimulus package, China plans to issue special sovereign bonds worth about 2 trillion yuan to stimulate consumer spending and support businesses. There are expectations for additional fiscal spending on consumer products and construction projects, with a focus on boosting the economy directly. Some economists believe that China’s leaders can afford to be more ambitious in their fiscal policies to address the economic challenges. Suggestions have been made to issue long-term government bonds to fund infrastructure and public works projects.
Former director of a Ministry of Finance-affiliated think tank, Jia Kang, believes that greater fiscal stimulus is necessary, suggesting an issuance of up to 10 trillion yuan in long-term government bonds to fund necessary infrastructure investments. Jia’s proposal is supported by the example of a similar fiscal package rolled out during the global financial crisis in 2008. Analysts suggest that a substantial fiscal package could have a significant impact on the economy but acknowledge that it is currently speculative. Addressing oversupply in the property market is crucial in implementing meaningful stimulus measures.
Analysts emphasize the importance of addressing the oversupply in the property market while implementing significant stimulus measures. The policy pivot in China has already led to a rally in Chinese stocks, suggesting potential short-term gains. However, sustaining the recovery in the Chinese economy and asset markets will require conviction and continued support from the government. The discussions among economists and the proposals for fiscal stimulus indicate a movement towards more decisive action to boost the economy and prevent a potential deflationary spiral in China.
