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China is expected to announce additional budget support on Saturday.
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Analysts expect $283 billion in stimulus measures to be pledged, Bloomberg reported.
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The lack of consumer support in China’s latest stimulus package disappointed investors.
China’s financial markets are waiting for Beijing to finally deliver a fiscal stimulus on Saturday, a key ingredient missing in its latest attempt to support the Chinese economy.
Finance Minister Lan Fo’an will announce a new consumer-focused push this weekend – or at least that’s what investors hope.
According to a Bloomberg survey, most analysts expect authorities to pledge $283 billion in fiscal stimulus during Saturday’s highly anticipated press conference. The expected measures include consumption vouchers, improved social safety nets and subsidies on specific products.
Analysts have long agreed that China’s persistently low domestic demand is at the heart of the country’s economic problems, and many were disappointed to see that measures in Beijing’s latest stimulus package failed to address the problem to grab.
Some commentators suggest that this is partly due to the leadership’s ideology, which appears to disapprove of welfare and direct consumer assistance.
In its latest stimulus package unveiled in late September, the country instead delivered interest rate cuts, a lower reserve ratio for banks, an equity stabilization fund and mortgage support in the housing sector.
The September 24 announcement took global investors by surprise, sending Chinese stocks into a rollercoaster rally. The CSI 300 Index rose 27%. Investors saw the efforts as a turning point in the country’s recovery and expected more to follow.
However, the momentum faded this week after Beijing failed to meet market expectations. Although China’s National Development and Reform Commission announced further support policies on Tuesday, investors were disappointed by the lack of another major boost.
The CSI 300 index fell more than 7% the next day. Chinese authorities followed up with the announcement of Saturday’s press conference, promising to introduce new measures aimed at fiscal policy.
It remains to be seen how far Beijing will actually go in supporting consumers. Some analysts remain less sure what the fiscal stimulus itself will actually deliver, pointing out that Beijing needs to implement structural reforms to revive consumer confidence.
“Fiscal policy could play a role in addressing some of the structural imbalances, but this would be part of a long-term refocusing of government priorities, rather than a one-off package,” wrote Mark Williams, head of the Capital Economics. Asia Economist.
That could take the form, for example, of improved health care and pension policies that encourage Chinese consumers to save less, Yale economist Stephen Roach previously wrote.
Meanwhile, one expert suggested that investors are misunderstanding China’s intention in providing stimulus. According to Arthur Kroeber, co-founder of Gavekal Dragonomics, Beijing’s intention is not to accelerate the economy by empowering consumers, but simply to stabilize it.
“The economic objectives are to stabilize growth and prevent deflation from tightening its grip,” he wrote in the Financial Times. “The market’s goal is to restore enough confidence so that stock prices show a steady, moderate increase. This will reopen the space for new listings and allow the stock market to resume its assigned role of financing China’s industrial policy ambitions.”
Read the original article on Business Insider
