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China’s Economic Stimulus Isn’t a Game Changer, JPMorgan’s Zhu Says

The Chinese national emblem and flags at the Great Hall of the People in Beijing, China, on Wednesday, Oct. 18, 2023. President Xi Jinping said the Belt and Road Initiative has a “golden decade” ahead, welcoming Russian President Vladimir Putin and other delegates at a forum aimed at reinvigorating what Xi has called a “project of the century.” Photographer: Qilai Shen/Bloomberg (Qilai Shen/Bloomberg)

(Bloomberg) -- Beijing’s latest blitz of economic policy measures is designed more to mitigate risks than to provide broad stimulus in the near term, according to Haibin Zhu, chief China economist at JPMorgan Chase & Co.

“If you ask me whether it represents a game changer or China’s ‘whatever-it-takes’ moment — or another round of a 4 trillion yuan stimulus package — my short answer is no, we are not there yet,” Zhu said at an event held by the Institute of International Finance in Washington. The 4 trillion yuan reference is to China’s 2008 stimulus package during the global financial crisis.

“We’ve seen the policy shift, but it’s not actually a 180 degree policy turn,” Zhu said Tuesday.

China has introduced or announced a string of measures since late September to help its slowing $18 trillion economy, including interest-rate cuts, steps to support the stock and property markets, pledges to reduce local debt risks and a plan to recapitalize big state-owned banks.

QuickTake: What’s Wrong With China’s Economy? What’s Xi Doing?

Yellen’s Disappointment

The announcements led a number of economists to upgrade their forecasts for the country’s growth this year, to a pace closer to the official target of around 5%. The moves also set off a powerful rally in Chinese stocks. However, the euphoria has waned as skepticism grows over whether authorities are willing to deploy greater fiscal firepower to decisively turn the economy around.

If investors think China will increase its focus on consumption and domestic demand, they will probably “continue to feel disappointed,” Zhu said.

Not only investors have been underwhelmed: US Treasury Secretary Janet Yellen on Tuesday reiterated her view that boosting consumer spending is important for China to achieve growth that doesn’t create global overcapacity. “So far, I would say I haven’t really heard policy announcements on the Chinese side to address that in the way that I was hoping,” she said at a press briefing.

JPMorgan’s Zhu anticipates President Xi Jinping’s government will retain its focus on advancing China’s industrial base.

Services Sector

“I don’t see the government giving up the policy agenda to promote the manufacturing upgrade,” he said at the IIF, where Yellen was due to speak later in the day. While pursuing higher productivity is only reasonable, Chinese officials need to be aware that productivity in a modern economy doesn’t just come from manufacturing but also services, according to Zhu. 

The service sector is the biggest employer China, providing 48% of jobs last year, compared with 29% for industry and 23% for the primary sector, data from the National Bureau of Statistics show.

Zhu argued the government may not have to provide massive direct subsidies for households if it can effectively boost services — particularly as officials have suggested they are still prioritizing employment as a way to lift household incomes.

The key to supporting services, he said, will be to provide a stable policy environment for its development. It doesn’t really require a lot of government investment, he said.

Some improvement has been seen recently in policies toward sectors such as education, gaming and the internet, although more balancing is still to be done, Zhu added.

The JPMorgan economist also predicted Beijing will be careful not to take back economic support measures in the new year. “We probably aren’t going to see the repeat of the policy exit by tightening too early, too quickly,” he added. “That probably will not happen again in 2025.”

©2024 Bloomberg L.P.