1/9
Sometimes you just have to trust the arithmetic. Since March I have argued that Beijing had little choice but to engineer a large demand-side stimulus of at least RMB 1 trillion before the end of...
nytimes.com/2024/09/27/bus…
Sometimes you just have to trust the arithmetic. Since March I have argued that Beijing had little choice but to engineer a large demand-side stimulus of at least RMB 1 trillion before the end of...
nytimes.com/2024/09/27/bus…
2/9
the year because – given trade and domestic investment constraints – more of the supply-side spending it had long favored wouldn’t allow it to achieve the 2024 GDP growth target.
the year because – given trade and domestic investment constraints – more of the supply-side spending it had long favored wouldn’t allow it to achieve the 2024 GDP growth target.
3/9
Most China analysts disagreed, on the grounds that Beijing was unalterably opposed to “the idleness-breeding trap of welfarism”, and so would never initiate such a spending program, but I argued that the choice facing Beijing wasn’t between welfarism and no welfarism.
Most China analysts disagreed, on the grounds that Beijing was unalterably opposed to “the idleness-breeding trap of welfarism”, and so would never initiate such a spending program, but I argued that the choice facing Beijing wasn’t between welfarism and no welfarism.
4/9
It was instead between welfarism and falling well short of the GDP growth target.
It had become so obvious that the Chinese economy was constrained mainly by weak demand that I told all my clients that any such announcement would probably set off a stock market rally.
It was instead between welfarism and falling well short of the GDP growth target.
It had become so obvious that the Chinese economy was constrained mainly by weak demand that I told all my clients that any such announcement would probably set off a stock market rally.
5/9
From recent events it now seems that Beijing might have finally chosen to implement a large demand-side stimulus (although we still don’t have details, so we can’t say for sure). Sure enough, the stock market has reacted positively, but excessively.
From recent events it now seems that Beijing might have finally chosen to implement a large demand-side stimulus (although we still don’t have details, so we can’t say for sure). Sure enough, the stock market has reacted positively, but excessively.
6/9
Check out the rather shocking graph in the NYT article. But while we needed a rise, I don’t think a 16% surge in the CSI 300 in one week is at all a healthy stock market reaction. It just reinforces how highly speculative the markets are in China (and how volatile).
Check out the rather shocking graph in the NYT article. But while we needed a rise, I don’t think a 16% surge in the CSI 300 in one week is at all a healthy stock market reaction. It just reinforces how highly speculative the markets are in China (and how volatile).
7/9
But that’s what we’re stuck with. This violent surge seems to leaves us where we were after the February rally. If it isn’t sustained and prices start to fall again, it will demoralize investors and further undermine the credibility of the stock markets and the regulators.
But that’s what we’re stuck with. This violent surge seems to leaves us where we were after the February rally. If it isn’t sustained and prices start to fall again, it will demoralize investors and further undermine the credibility of the stock markets and the regulators.
8/9
That is why I think this week’s stock market performance may not be what the regulators hoped for and may put even further pressure on Beijing to follow through with a substantial demand-side stimulus.
That is why I think this week’s stock market performance may not be what the regulators hoped for and may put even further pressure on Beijing to follow through with a substantial demand-side stimulus.
9/9
Not only is a demand-side stimulus the only effective way to boost economic activity enough before year end to allow China to reach the GDP growth target, but Beijing also cannot allow this week’s stock-market rally to fizzle out yet again.
Not only is a demand-side stimulus the only effective way to boost economic activity enough before year end to allow China to reach the GDP growth target, but Beijing also cannot allow this week’s stock-market rally to fizzle out yet again.
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