China's Incredibly Out-Of-Touch Stimulus Policy
From not-so-urgent to out-of-touch. How to think about China's fiscal stimulus policies.
I am officially changing my stance on China's fiscal stimulus policy. Instead of calling it the "not-so-urgent" fiscal stimulus policy, I'm changing it to the "out-of-touch" stimulus policy.
From an economic standpoint, China's recent fiscal stimulus announcement centers around debt management and risk mitigation rather than spurring economic and consumption growth. To me, this is just backward thinking.
Take a step back and imagine that we are in the middle of COVID-19, and instead of the crazy stimulus package the US announced ($3.58 trillion or ~17% of 2020 GDP) to spur growth again, we focused on "reducing" the Federal deficit and containing our borrowing. US economic growth would have likely suffered for years to come and the unemployment rate would have remain elevated. Millions would be out of jobs still and families would still be fighting to claw their way back.
Just look around the globe. Every other country that didn't respond in the same speed and manner the US did is still suffering the aftereffects. China is no different, and if you visit Shanghai today and talk to some of the people who reside there, they still bring up the trauma that happened in March/April 2022 as a sign of distrust of the government.
The Shanghai lockdown still lingers in many people's minds. After nearly 15 months of the Pfizer vaccine announcement, the fact that China still pursued a zero-COVID policy was not only asinine but stupendously preposterous. Some might call it illogical, I will just call it out-of-touch.
And when it comes to stimulating the economy, the policy announcements so far are no different. Instead of tackling the major issue (the property market) all at once with clear objectives and strict deadlines, policymakers are going the route of "responding to market dynamics". The wishy-washy approach almost guarantees an early failure followed by desperate policy measures in the end. What the Chinese fail to realize in this case is that this is a confidence game, and without a bazooka, it's going to fail 100 out of 100 times.
Waiting for the Obvious
To many world leaders, the zero-COVID policy was nonsense from the start. For some, anchoring bias prevented them from seeing that inevitable, and for others like China and Australia, protests on the streets needed to happen for them to act urgently.
In my recent meeting with Investing In China, he pointed out to me that if you lived in China (in 2022), the zero-COVID policy ended overnight. It was as if a magic switch flipped in the minds of the policymakers, and everyone realized how stupid of a policy it was.
So in many ways, China is not stubborn, but why did it have to wait until it was so disgustingly obvious to change its ways?
I suspect that the fiscal stimulus route will be no different. Right now, policymakers continue to look at stabilizing growth as opposed to promoting one. This is the wrong approach and economic figures will pay the price for that.