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Economics: What to expect from China’s stimulus

Additional policy support is needed in four areas to help China’s slowdown: (1) the GDP and employment targets appear to be at risk; (2) the property market has slumped again, pushing more developers into distress; (3) defaults on trust products may spread to the credit markets; (4) local government finances need to be shored up.

However, none of these issues are likely to require massive fiscal or monetary support:

  1. Several factors suggest economic momentum should be just about enough to hit the 5% annual growth target and the 5.5% unemployment rate.

  2. We expect the state to step in more directly to support the property market.

  3. We doubt policymakers are overly concerned about recent defaults on trust products spreading to the credit markets: the link between banks and trust companies has decreased since 2017.

  4. We expect local government debts to be stabilised temporarily through a modest expansion of an existing debt swap programme.

We think China’s recent economic stumble is more manageable than many assume, but the above are just symptoms of a deeper problem. The zero-Covid policy, and the way it was ended, appears to have shattered household confidence, and the government seems unable or unwilling to take steps that might boost sentiment. If confidence remains weak, next year’s slowdown may be worse.

Economics: What to expect from China’s stimulus
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