Economic Uncertainty: How the US Election Will Impact China’s Stimulus Plans
As the world waits with bated breath for the outcome of the US presidential election, analysts are predicting that China’s highly anticipated stimulus package will be significantly influenced by the result. The size of the package is expected to be announced on Friday, following a five-day meeting of the standing committee of the National People’s Congress, China’s parliament.
A Trump Win Could Mean a Bigger Stimulus
According to Ting Lu, chief China economist at Nomura, a Trump win could result in a stimulus package that is 10-20% larger than if Harris were to win. This is because Trump has threatened to raise tariffs on US imports from China, which would hit China’s exports and require the country to rely more heavily on domestic demand to boost growth.
Domestic Challenges Take Center Stage
While the US election result will have an impact, most of China’s challenges are domestic, including a real estate slump and tepid consumer demand. Chinese authorities are constrained by the US-China competition and are prioritizing upgrading technology across the board. This means that the government’s willingness to stimulate the economy may be lukewarm.
Market Volatility Will Play a Key Role
Liqian Ren, leader of quantitative investment at WisdomTree, believes that the scale of the stimulus will be determined by the stock market reaction, rather than who wins the election. Market volatility in China is likely to make the government feel more obligated to counter it, which could result in a larger stimulus package.
Fiscal Support on the Horizon
Chinese President Xi Jinping has called for strengthening fiscal and monetary policy support, and halting the decline in real estate. While the People’s Bank of China has cut interest rates, the Ministry of Finance has yet to release details on the widely anticipated fiscal stimulus. Analysts expect the deficit to be expanded beyond 4%, with some predicting more than 10 trillion yuan in debt issuance over a few years.
Local Governments Hold the Key
However, WisdomTree’s Ren notes that local governments are doing a lot to counter stimulus, such as strictly enforcing tax collection, which has discouraged business activity. It may take some time before local authorities feel they have the cash to spend, which could impact the effectiveness of the stimulus package.
Consumption Stimulus May Come from Property Support
Citi analysts believe that consumption stimulus may come more from property support at this stage, rather than direct handouts to consumers. However, more decisive consumption support could still be a realistic option under more adverse tariff scenarios.
As the world waits for the outcome of the US election, one thing is certain – China’s stimulus plans will be closely watched and heavily influenced by the result.
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