China stimulus report has the right number but the details are all wrong

The market has been patiently waiting for news on Chinese fiscal stimulus after the finance ministry hinted it was coming following a range of moves to boost financial markets.

Today in a report from Reuters, we got a strong sense of what’s coming. The report says that after a Nov 4-8 series of meetings, that officials will announce a 10 trillion yuan ($1.4 trillion) package. That’s 8% of GDP and a number that many analysts were looking for.

Unfortunately, the details of the package are weaker than hoped. Firstly, the spending will be spread over three years 2024, 2025 and 2026. Secondly, 6 trillion yuan of that, or 60%, is earmarked for helping local governments with their debt. That raises more questions than it answers and points to deeper problems at the local level than understood.

The next 4 trillion yuan will be sued for property purchases over five years as part of the government’s plan to buy up unused properties for low-income housing.

All that’s left for consumers appears to be some kind of extension of subsidies already in place for buying new appliances.

As part of the overall fiscal spending, China is also considering
approving other stimulus initiatives worth at least one trillion yuan,
such as a consumption boost including trade-in and renewal of consumer
goods, said the sources.

If there’s any good news here it’s that the stimulus numbers could still be augmented and the report highlights that the meeting was likely moved beyond the US election in order to increase stimulus if Trump wins.

For now, the market reaction in the Australian dollar (down 30 pips today) and the MCHI ETF tell the story.

This article was written by Adam Button at www.forexlive.com.