Key Takeaways:
– The size of China’s highly anticipated stimulus plans might be determined by the US presidential election results.
– China’s stimulus package could be around 10-20% more significant under a Trump win than under a Harris win.
– Local economic factors and US trade restrictions are significant considerations for China’s stimulus plans.
– Uncertainty about the US election and its potential impact on trade relations presents a challenge to China’s policymakers.
China’s Stimulus Package: A Reflective Measure
China’s fiscal stimulus plans are under the microscope, with market analysts suggesting that the size of the proposed package might hinge on the outcome of the US presidential election. It’s anticipated that Beijing will reveal details of its planned fiscal support soon, hot on the heels of the standing committee of the National People’s Congress – China’s parliament – wrapping up its five-day meeting.
Interestingly, the timing of these revelations could coincide with the US election results, where either the Republican nominee Donald Trump or Democrat rival Kamala Harris will be voted in as the next president. Analysts suggest this might directly influence the stimulus measures China plans to employ.
Impact of US Election on China’s Economy
Economist Ting Lu suggests that “The size of China’s fiscal stimulus package would be larger under a Trump win”. This is likely due to the assumption that under Trump, we can questionably foresee more significant trade restrictions including a threat of 60% tariffs on US imports from China. So, a Trump win would essentially ramp up the requirement for China to rely more on domestic demand to bolster growth.
Meanwhile, Kamala Harris has not yet indicated a significant shift from the Biden administration’s approach; a stance that poses restrictions on China’s access to advanced technology. This approach could still affect China’s export-driven economy.
Trade Restrictions: A Key Consideration
Chief economist of Nanhua Futures, Zhu Bin, highlighted the possible impact of increased trade restrictions. In essence, a strict trade policy would demand China to rely more heavily on its domestic demand to stimulate growth. Zhu further suggested that greater tariffs would put pressure on the Chinese yuan against the US dollar. Nonetheless, China’s relations with the US, and whom they would find more conducive to their interests, remains a topic of diplomatic debate.
China’s Domestic Challenges
Despite the speculated impact of the US election result, authorities emphasize that China’s main challenges are primarily domestic. Hence, the necessity of upgrading technology to boost economic confidence is paramount, irrespective of who emerges as the US President.
Market Volatility and Stock Market Reaction
Increases in market volatility internally within China might lead to China intensifying efforts to counterbalance this volatility. In recent years, fluctuations in the Chinese stock market have had an increasingly significant impact on economic confidence.
Fiscal Support and Debt Issuance Forecast
Although specific numbers are yet to be revealed, the Chinese authorities are reportedly considering a colossal debt issuance exceeding 10 trillion yuan over several years. On the other hand, if the deficit expands beyond 4%, an amount surpassing 4 trillion yuan is expected. These figures replicate the aftermath of the 2008 financial crisis.
The Stimulus Expectation Gap
Despite the hype around fiscal support, it’s crucial to note that China’s local authorities are executing actions that could potentially counteract stimulus effects. Cases of stringent tax collection enforcement in some areas have resulted in retarding business activity. Therefore, local authorities might need to secure adequate cash before investing in stimulus practices.
The Future of Consumption Support
Given the financial climate and tariff implications, consumption support is more likely to be aligned with property support presently. However, in more unfavorable tariff scenarios, decisive consumption support could be a predominant option. These actions will carve China’s next moves, as the nation’s fiscal big week looms, shadowed by the outcome of the US election.