Payden & Rygel: China real GDP vs level implied by pre-covid trend

Payden & Rygel: China real GDP vs level implied by pre-covid trend

September 27, 2024

China
China 1.jpg

This week, China announced its largest economic stimulus package since the pandemic. The Chinese equity market cheered, with the Shanghai Shenzhen CSI 300 rallying 6% on the news, erasing its year-to-date losses in just two days. Will the stimulus be enough to turn the macro tide? We're skeptical.

According to the People's Bank of China Governor Pan Gongsheng, slashing key borrowing rates and bank reserve requirements amounts to about ¥1 trillion ($142 billion) in liquidity. Separately, China earmarked ¥800 billion for stock investments and share buybacks, and rumors have swirled about a fiscal package. However, zooming out, China's total economic output is falling short of its pre-Covid growth trend by ¥3 trillion and the output level implied by the revised 5% growth target, mainly due to weakness in China's property sector.

Will lower rates boost growth? New household and business borrowing has been contracting since January 2024, even though rates had already been slashed. So, while investors seem optimistic about the new stimulus wave, it might not be enough to solve deeper underlying problems.

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