Not old-school stimulus
China’s most influential economic advisor says Beijing’s recent policy support measures aim to lay the foundations of a long-term revival, rather than just a short-term stimulus.
In a recent essay, Liu Yuanchun, president of Shanghai University of Finance and Economics and a trusted advisor to Xi Jinping (see our profile of Liu here), said:
- “[Beijing's support package] is by no means a simple 'liquidity boost' to give everyone some breathing room.”
- “The package of incremental policies will bring about fundamental changes in behavior and incentive systems.”
Liu said Beijing’s focus is on expanding domestic demand, with stabilizing the property and stock markets “an important prerequisite” to restoring confidence.
According to Liu, the central bank’s (PBoC) recent launch of two lending facilities to support share purchases is designed to “build an invisible bottom” under stocks, many of which he believes are mispriced.
- Liu noted that 800 of China’s 5,300 listed companies are priced below net assets per share – meaning they’re valued at less than the sum of their parts – a situation he believes must be corrected.
Notably, Liu doesn't advocate for consumption-oriented stimulus. Instead, he argues that efforts to boost consumption:
- “Should focus on increasing future income and repairing balance sheets”
Translation: The path to greater consumption lies in higher-paying jobs – delivered by productivity gains – and higher asset prices.
Get smart: Understanding how Beijing sees the current challenges – and the rationale behind its recent measures – is vital to anticipating what comes next.
- Liu’s comments suggest we should expect more support for property, but old-school pump-priming stimulus is less likely.