Analysts React to China's Lackluster Stimulus Measures: Will a 'Big Move' Follow?
Chinese investors have been left wanting more from the latest stimulus measures announced by authorities. Analysts are attempting to explain the reasons behind Chinaâs lack of deeper action to stimulate its economy and how this might affect the Asian giantâs commercial partners.
Chinaâs Weak Stimulus Measures Stifle Markets, Analysts Try to Explain the Reasons Behind These Actions
The latest set of actions implemented by Chinaâs government to stimulate the national economy has left investors expecting more. While these measures were initially received with optimism, leading national stock exchanges to rally by double digits, the lack of new announcements has stifled this momentum, leaving markets filled with expectation.
Chinaâs actions, deemed weak given the size of its vast economic apparatus, are being analyzed by experts trying to explain why authorities have not committed to a larger intervention. Some suggest this is due to a cautious approach aimed at avoiding exacerbating the already high debt levels of the Chinese economy. However, others argue that issuing a large amount of currency might also impact one of the Chinese stateâs goals: the internationalization of the yuan.
Even so, the 200 billion yuan destined for infrastructure projects announced by Chairman of the National Development and Reform Commission Zheng Shanjie disappointed many, who expected a âbig moveâ from Chinese authorities.
Chinese experts close to the government estimate the needed stimulus to be close to 10 trillion yuan distributed over a year or two and financed with a new issuance of treasury bonds. Others predict that such incentives would not be broad enough to prop the Chinese economy up, stating that the decline has been âunprecedented.â
Economist Li Xunlei stated:
If every year they issue 5 trillion yuan in treasuries, then they will issue 50 trillion yuan in ultra-long-treasuries over a decade. There wonât be any ramifications, there will only be positives.
Xunlei estimates this would increase the Chinese economyâs leverage levels to 50%, still lower than the U.S. economyâs 120%. Nonetheless, it remains to be seen if the Chinese government will compromise to make such a big move.
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