The newly announced stimulus of China is aimed at boosting liquidity, stimulating consumer spending and revitalising the real estate sector of the country. As Kavan Choksi says, the stimulus package has already managed to alleviate investor concern in regard to the willingness of the government to take bold action. However, it is just a first step towards realizing the full growth potential of the Chinese economy.
Kavan Choksi underlines the global implications of China’s stimulus package
China’s new stimulus package arrived right before the 75th anniversary of the People’s Republic. This announcement was widely well-received by equity investors, and led to a surge of more than 15% in the main stock indices of the country. This new package is somewhat reminiscent of the $568 billion stimulus introduced by China in late 2008 for the purpose of shielding its economy from the global financial crisis of 2008-10. It also provided the necessary boost to the global demand that helped other nations. This time the global impact of the stimulus package of China would rely on many important factors. These factors include its size and reach, its success in improving domestic growth, and the strength of the economic ties of China to other nations.
The recent surge witnessed in the Chinese stock prices may reflect the expectations of higher inflation that can raise nominal profits. It also indicates to the anticipation of stronger corporate and economy-wide fundamentals. These two components however do have varying implications for the economy of China and the rest of the world.
Based on the financial market reactions in China, the stimulus package is believed to have alleviated concerns in regard to the willingness and ability of the government to take bold steps for the purpose of stimulating economic growth. Many experienced stock market investors are now more confident about China managing to turn its economy around and achieve stronger growth in the last quarter of 2024 and into 2025.
As Kavan Choksi says that among developed nations South Korea and Australia stand to benefit the most from an economic rebound in China. Even a partial recovery in the real-estate sector of China would fuel demand for raw materials like Australian iron ore. South Korea is home to many important suppliers belonging to regional and global value chains of China, and therefore may experience higher demand for its industrial exports.
If households in China become willing to spend more due to the impact of the stimulus, nations producing luxury goods or attracting Chinese tourists may benefit. Japan was among the key beneficiaries of the 2008 stimulus package of China. This was largely because a number of Japanese firms served as key suppliers to Chinese companies. Japan is also a fairly popular destination for Chinese tourists. The stimulus announcement in China hence has elicited visible excitement on the Tokyo stock market. When it comes to developing nations, there are many countries that have a high chance of benefiting from an increase in Chinese demand for industrial inputs and commodities. These countries include Thailand, Malaysia and even major commodity producers like Argentina and Chile.
