Stagnation instead of Stimulus: China's Economic Planning Stalls

China's fiscal policy hopefuls came under scrutiny when a much-anticipated announcement of economic stimulus measures was absent on Tuesday, disappointing investors. This led to a breakdown of the historical rally in Chinese stock markets. Expectations had risen that fiscal spending would follow monetary easing measures, which had supported stock and real estate markets last month, to strengthen business and consumer confidence. However, the lack of further details left investors and economists questioning how Beijing intends to resolve the country's economic slump. Zheng Shanjie, chairman of China’s National Development and Reform Commission (NDRC), promised at a highly anticipated press conference an accelerated issuance of bonds and a pre-funding of about 200 billion renminbi ($28 billion) from next year's budget. He also suggested measures to stabilize the real estate market to achieve the economic growth target of five percent. Yet, the announcements were unsatisfactory for many investors. Stock gains in Hong Kong and on the Chinese mainland shrank, with the Hang Seng Index experiencing its worst daily loss since October 2008. The CSI 300, which had surged over 33 percent in the previous month, started Wednesday five percent lower. Analysts highlight that the NDRC, a powerful state body, is more focused on implementation and supervision than on central policy design. Rory Green from TS Lombard believes that Beijing's plans for generous fiscal stimuli have been overestimated. While the monetary impulses from the People’s Bank of China were not very impressive, he emphasizes that the focus remains on stability rather than growth. Xu Zhong warned investors against misconstruing the PBoC statement as a signal for stock purchases, highlighting concerns about leveraged fund purchases—a characteristic of the 2015 bubble formation. Despite a lack of details, many hope that more substantial plans will be unveiled in the coming weeks. The commission plans to coordinate the expansion of effective investments and accelerate steps according to the Politburo. Analysts, including those from HSBC and Goldman Sachs, see further opportunities for action, particularly in the framework of the National People’s Congress. China’s Finance Minister will hold a press conference on Saturday to bolster fiscal policy. However, CreditSights analysts caution that the extent of additional stimuli could fall short of market expectations. Estimates range from 1 trillion to 10 trillion renminbi, with Citi suggesting a baseline assumption of 3 trillion this year. Nicholas Yeo from Abrdn emphasizes that the main problem lies in a lack of demand, and Aaditya Mattoo from the World Bank points to deep-rooted structural issues. Analysts also express concerns about the need to hold back larger stimuli in case of a renewed trade war with the USA should Donald Trump win the upcoming presidential election.