The State Council also said the economy won’t be flooded with excessive stimulus, and that China won’t “overdraw” on the room it has to take more policy action to protect longer-term growth -- reiterating the relatively cautious stance officials have taken toward stimulus this year.
The meeting sent a signal: “Don’t expect massive additional stimulus,” according to Bruce Pang, head of research and chief economist for Greater China at Jones Lang LaSalle Inc. He added that the language used in the announcement suggested “the possibility of adopting extraordinary tools such as special sovereign bonds or increasing official budget deficit has decreased.”
The property slump and China’s stop-start reopening from Covid lockdowns have put the government’s official gross domestic product growth goal of “around 5.5%” well out of reach. Officials have downplayed the target in recent months as they stick to the Covid Zero policy of eliminating infections, with economists polled by Bloomberg projecting growth of less than 4% this year.
It’s truly a reflection of how large the Chinese economy has become, and how deep the dependence of leverage is, that CNY1 trillion in fresh spending is not deemed to be aggressive enough to support growth. However, more stimulus is certainly better for markets than less.
China’s administration does not want to further inflate its bubbly valuations but they don’t want a crash either. That implies they will do just enough, whatever that means, to ensure growth remains positive.
The shares of Chinese company listed in the USA continue to lead the index on the upside. JD.com, Pinduoduo and Baidu were all up in excess of 7% today.
The Invesco Golden Dragon China ETF has posted an upside outside week and another higher reaction low.