Assessing China’s Fiscal Challenges: Insights from Citi Strategist

Amidst China’s economic woes, there are doubts about the efficacy of a substantial fiscal stimulus package to address the underlying issues.

Absence of a Fiscal “Bazooka”

Luis Costa, a strategist at Citi, highlights the absence of a decisive government response akin to a “bazooka” to combat China’s economic challenges. He emphasizes a shift in perception regarding the government’s ability to steer the economy towards prosperity.

Historical Perspective on Stimulus Measures

While China has implemented stimulus measures in the past to support its economy, there is reluctance among Beijing’s top leadership to rely heavily on such policies. President Xi Jinping has not been inclined towards direct cash payments to citizens.

Persistent Economic Struggles

Despite past efforts, China continues to grapple with deflation, a sluggish property sector, and significant outflows of foreign capital. The CSI 300, a key indicator of the Chinese stock market, has experienced a notable decline over the past year.

Anticipation of Policy Announcements

China’s upcoming “Two Sessions” parliamentary meeting holds significance for investors, as it will unveil the country’s 2024 growth target and strategies to revive the economy. Fiscal policy outlook will be closely scrutinized, with expectations of clarity on targets and measures.

Fiscal Policy as a Primary Lever

Costa underscores the importance of fiscal policy in addressing China’s economic challenges. However, he acknowledges the complexity and uncertainty surrounding the effectiveness of such measures given the current economic landscape.

Structural Shifts in Market Dynamics

Notable disparities in stock market performance between China, India, and the US highlight underlying structural changes. China’s market capitalization has experienced a significant decline, reflecting broader economic challenges.

Caution Against Overreliance on Stimulus

Concerns have been raised regarding the potential risks associated with a large-scale stimulus package, including the exacerbation of underlying issues. Some experts caution against a “Lehman moment” scenario triggered by indiscriminate fiscal interventions.