The People’s Bank of China announced a comprehensive set of monetary measures on Tuesday, September 24th, which is touted as the most powerful move in years, but it has proven ineffective in addressing the key threats facing the economy.
Bloomberg believes that rather than being a step towards economic recovery, this move actually highlights Beijing’s long-standing lack of stimulating policies.
Economists Shu Chang and Zhu Diwen of Bloomberg Economics stated in their analysis that the official measures announced “indicate Beijing’s urgent need to avoid the risk of monetary tightening and to put economic growth on track towards the 5% target for 2024.” Their SHOK model warns that China’s GDP growth in the coming year will be only about 1%.
Many economists argue that the recent stimulus policies announced by the Chinese government focus mainly on the monetary aspect, while what the Chinese economy truly lacks are fiscal stimulus measures. The economy needs stimuli to boost consumption and ultimately address the sluggish property market that is denting consumer confidence.
Nomura Securities economist Lu Ting wrote in a report on Wednesday, “The real bottleneck facing the Chinese economy is the lack of effective demand, not available lending.” This viewpoint is shared by multiple market observers and echoed by several foreign financial media outlets.
Lu Ting stated, “The most effective method for sustaining economic growth is to end the real estate crisis.” He pointed out that many measures rolled out earlier this year by Beijing have yet to have a significant impact.
Analysts from Longzhou Financial News stated in a report that “each of the major monetary policy measures announced by the People’s Bank of China has been used in the past with minimal impact on the economy.” They described the scale of this stimulus plan as “moderate,” rather than “strong.”
Lu Ting emphasized in the report, “When the economy falls into a liquidity trap, fiscal stimulus measures become more critical.”
Rumors were swirling in the mainland financial circles on Wednesday discussing and considering the rollout of large-scale fiscal stimulus policies before October 1st, including increasing public budget expenditures, welfare subsidies, and enhancing local tax powers.
“There is no impossible, only unimaginable. I feel the Chinese (Communist) government is going crazy,” a practitioner wrote on social media. Epoch Times cannot verify the reliability of these rumors.
Lynn Song, Chief Economist for Greater China at ING Bank, stated that the most direct way to stimulate the economy in the short term is by increasing government investment. However, in the past, Chinese Communist leaders have refrained from providing such fiscal support policies due to ideological reasons.
The Barron’s reported that Stephen Innes, partner at SPI Asset Management, urged the market to remain cautious and watch for any significant developments ahead.
“Investors have been on edge due to monetary tightening, deleveraging, and weak growth. But when you roll out these unexpected measures, it starts feeling more like chaos than a solution,” said the seasoned investor.
“It’s almost like they are using a flamethrower to put out a fire,” Innes said. This metaphor implies that using a flamethrower to extinguish a fire will only intensify the flames rather than put out the fire, suggesting that the action or method taken might backfire.