What to expect from China’s economic stimulus?

Doha: After the re opening from the late wave of Covid pandemic in China two years ago, there was significant hope for another period of strong Chines...

Doha: After the re-opening from the late wave of Covid pandemic in China two years ago, there was significant hope for another period of strong Chinese driven global growth.

However, following an initial recovery, expectations faded as GDP prints came consistently below the country’s long-term average of 5.6%. Part of the reason for a lacklustre performance in recent quarters has been the lack of major fiscal stimulus and the lack of clarity in terms of overall policy direction, QNB said in its economic commentary. 

Last month, Chinese economic authorities decided to take more decisive action to support growth. A new battery of policy stimulus measures were launched.

This included the re-capitalization of state banks, cuts in interest rates and reserve requirement ratios, more fiscal spending, and support for both real estate and capital markets. 

The announcement quickly reignited the risk-taking “animal spirits” of investors, speculators and entrepreneurs. This led Chinese asset prices to surge significantly, with equity prices up 38% in a matter of three weeks, before softening and stabilizing.