China’s economic engine sputtered last week as shares plummeted 3.7%, a stark reflection of investor uncertainty over the government’s ability to reignite growth. The Third Plenum, widely anticipated to deliver a decisive stimulus package, fell short of expectations, sending shockwaves through the market.
While Beijing has since unveiled a series of measures, including multiple interest rate cuts and substantial subsidies for consumer goods, these efforts have thus far failed to assuage investor concerns. The benchmark index, although still positive for the year, has seen its gains significantly eroded by the recent downturn.
The upcoming release of key economic indicators, including the manufacturing and services Purchasing Managers’ Indexes (PMIs), is expected to paint a bleak picture of the economy. Analysts warn that the data could intensify pressure on policymakers to implement more aggressive stimulus measures.
A focal point of the government’s stimulus package has been the automotive sector. By doubling subsidies for electric vehicles (EVs) and conventional cars, as well as offering incentives for the purchase of home appliances, Beijing aims to boost consumer spending. The strategy is underpinned by the recognition that the EV market, one of the few bright spots in the economy, has the potential to drive overall consumption.
However, the scale of the subsidies highlights the severity of the economic slowdown. The fact that the government has felt compelled to significantly increase support for EV purchases, even as some automakers were scaling back their own incentives, underscores the depth of the challenges facing the Chinese economy.
AMP chief economist, Shane Oliver, cautioned that while the recent stimulus measures are a step in the right direction, they are relatively modest. He anticipates further policy easing in the coming months, including additional monetary policy adjustments and potential fiscal stimulus. The upcoming Politburo meeting will be a crucial juncture for determining the trajectory of China’s economic policy.
As the world’s second-largest economy grapples with its most significant slowdown in decades, the implications for global growth are far-reaching. A sustained period of weak Chinese economic performance could dampen demand for commodities, impact supply chains, and weigh on global stock markets.