By Financial markets in China are waiting for Beijing to finally provide fiscal stimulus at a scheduled announcement on Saturday, the key ingredient missing in its latest push to shore up China’s economy.
Finance Minister Lan Fo’an is set to announce a fresh consumer-focused boost this weekend — or at least that’s what investors hope will happen.
According to a Bloomberg survey, most analysts expect authorities to pledge $283 billion of fiscal stimulus at Saturday’s highly anticipated press conference. Expected measures could include consumption vouchers, improved social safety nets, and subsidies on specific products.
Analysts have long agreed that China’s stubbornly low domestic demand is the crux of the country’s economic problems, and many were disappointed to see measures in Beijing’s latest stimulus package fail to address the issue.
Some commentators suggest this is partly due to the leadership’s ideology, which seems to disapprove of welfare and direct consumer aid.
In its latest stimulus package unveiled in late September, the country instead delivered interest rate cuts, a lower reserve ratio requirement for banks, a stock stabilization fund, and mortgage support in the housing sector.
The September 24 announcement surprised global investors, sending Chinese stocks on a roller coaster rally. The CSI 300 Index roared up 27%, investors saw the efforts as an inflection point in the country’s recovery and expected more to come.
However, momentum fizzled this week after Beijing failed to meet the market’s expectations. Though China’s National Development and Reform Commission announced further support policies on Tuesday, investors were disappointed by the lack of another major boost.
The CSI 300 index fell over 7% the next day. Chinese authorities followed up by announcing Saturday’s press conference, which promised to introduce new measures centered on fiscal policy.
It remains to be seen how far Beijing actually goes in bolstering consumers. Some analysts remain less sure about what fiscal stimulus will actually achieve on its own, pointing out that Beijing needs to pursue structural reforms to revive consumer confidence.
“Fiscal policy could have a role to play in tackling some of the structural imbalances, but this would be as part of a long-term re-orientation of government priorities, not a one-off package,” wrote Mark Williams, Capital Economics Chief Asia Economist.
For instance, that could take the form of improved healthcare and retirement policies that encourage Chinese consumers to save less, Yale economist Stephen Roach previously wrote.
Meanwhile, one expert suggested that investors are misunderstanding China’s intent in providing the stimulus boosts. According to Arthur Kroeber, founding partner of Gavekal Dragonomics, Beijing’s intent isn’t to accelerate the economy by enabling consumers, but simply to stabilize it.
“The economic aims are to stabilize growth and prevent deflation from tightening its grip,” he wrote in the Financial Times. “The market goal is to restore enough confidence so that equity prices post steady, moderate rises. This will reopen the window for new listings and enable the stock market to resume its assigned role of financing China’s industrial policy ambitions.”
