China’s stimulus is hefty but insufficient "The upshot is that Tuesday’s stimulus still fails to grapple with the reality of China’s economic challenge. Domestic demand is saddled by high precautionary saving rates and low confidence in the private sector. Beijing’s desire for export-led growth is also under pressure from the intensifying trade war with the US. The latest measures are poorly targeted for these problems, and may largely be a cosmetic effort to hit Beijing’s annual 5 per cent economic growth target.
What China needs is a targeted fiscal stimulus to raise demand and beat deflationary pressures. Households, particularly the poorest, need a boost. That means raising social security and healthcare support to ease the financial worries that encourage saving. Incentives to buy up unsold housing inventory and for business investment would help too. Then, to unleash the animal spirits of China’s investors and entrepreneurs, policy stability and deregulation is necessary. All this requires Beijing to overcome its hesitance to spend big and its desire to control the private sector. The stimulus is, at least, a step in the right direction. It is a sign that Chinese officials are waking up to the urgent need to re-energise its economy. But turning China’s slump around will require more money, a more focused policy response and an end to the rhetoric that has hurt investor and consumer confidence alike."
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