China will develop a stimulus plan with American elections in its sights

Top Chinese lawmakers are meeting Monday to hammer out a major stimulus package that analysts say could get even bigger if the former U.S. president Donald Trump wins the White House this week.

Beijing has responded to calls in recent months to boost support for the Chinese economy economy after years of inaction and the announcement of a series of measures, including interest rate cuts and the easing of some restrictions on house purchases.

But they have refrained from unveiling figures for the long-awaited stimulus measures, disappointing investors after a market rally failed when officials repeatedly failed to commit to a turnover.

Analysts now hope that this number could emerge at this week’s meeting of the Standing Committee of the National People’s Congress, the highest body of China’s parliament and led by number three official Zhao Leji.

The standing committee reviews and approves all legislation, including the allocation of funds from China’s budget.

“We expect more details on the proposals to be adopted,” said Heron Lim of Moody’s Analytics, including “how this additional funding would be allocated to address near-term economic challenges.”

Economists at Nomura expect lawmakers to approve about a trillion yuan ($140 billion) in additional budget this week – mainly for indebted local governments.

Analysts also expect Beijing to approve one trillion yuan for banks on a one-off basis, aimed at writing off non-performing loans over the past four years.

“A lot of money will go to cover the losses,” added Alicia Garcia Herrero of Natixis.

“It’s not really a growth push.”

Concrete measures are expected at the end of the meeting on Friday – in time for Beijing to take stock of the results of the US presidential election.

‘We believe the American elections The results will have some impact on the size of Beijing’s stimulus package,” Ting Lu, Nomura’s chief economist, said in a research note.

Both candidates in the race have pledged to take a tougher stance against Beijing, with Trump promising tariffs of 60 percent on all Chinese goods entering the country.

‘Great challenges’

Economists at Nomura expect Beijing to adjust the size of its stimulus measures depending on the outcome.

“In our view, the size of China’s fiscal stimulus package would be approximately 10 to 20 percent larger under a Trump victory than under the scenario of a (Kamala) Harris victory,” Lu wrote.

But he said “the biggest challenges to Beijing come from within rather than without.”

China is struggling with sluggish domestic consumption, an ongoing real estate crisis and rising government debt – all of which threaten Beijing’s official growth target of 5 percent for this year.

The real estate sector has long been a key driver of growth, but is now mired in a sea of ​​debt.

Average prices of new homes have risen slightly in the past month, according to a survey of 100 cities by independent researcher China Index Academy.

But China’s cities and provinces still struggle with a large amount of unfinished and unsold housing, and buying it back could cost Beijing as much as 3.3 trillion yuan, according to Natixis estimates.

According to Lim of Moody’s Analytics, long-term housing problems continue to lead to weak consumer consumption.

“The average Chinese consumer with existing mortgages does not feel that their wealth is increasing,” he said.

The issue of how local governments deal with debt will also be scrutinized at this week’s NPC meeting.

Authorities at and above provincial level will have to report their debt situation to the NPC every year, Huang Haihua, spokesman for the Legislative Affairs Committee of the NPC Standing Committee, said at a briefing Friday.

But China’s economic problems go deeper than local mismanagement and empty houses.

“The economy as a whole is losing productivity due to effectively misallocated savings,” said Garcia Herrero, referring to issues within China’s industrial policy spending, including extensive subsidies.

“They really need to change all that,” she said.

Source: AFP