The weekly recap: Why the US election won’t impact China’s stimulus decisions

It seems like everyone in Trivium China World has spent the past week stuck in a holding pattern – either doomscrolling about the upcoming US election or speculating about next week’s Chinese legislative session.

But there’s light at the end of the tunnel.

• We should finally get some big political and economic questions answered late next week.

Last Friday, the Chinese legislature (NPCSC) finally announced that it will hold its next session November 4-8.

• Later that day – US time – we learned that, as expected, authorities will announce their long-awaited fiscal support package “after the conclusion of” the NPCSC’s session.
• We expect the announcement to come immediately afterward – in the evening of November 8, China time.

So while we still don’t have the concrete details on the scope of the package, at least we know when those details will be announced.

In the meantime, speculation continues: Reuters has reported that officials are set to announce at least RMB 10 trillion in new spending, with:

• RMB 6 trillion financed by the central government (spread over three years) – and going toward alleviating local government debt strains
• RMB 4 trillion financed by local government bond issuance (spread over five years) – used to purchase idle land and unsold housing from property developers

There could be more: According to Reuters, another RMB 1 trillion may go to support consumer goods trade-ins, with a final RMB 1 trillion earmarked for recapitalizing China’s big state-owned banks.

Reuters’ sources also suggested that officials may consider additional funding if Donald Trump wins the US presidency – to guard against any economic fallout from a potential increase in tariffs on Chinese exports.

But I’m skeptical that the US election outcome will impact Chinese macro-policy thinking.

• First, the fiscal package will have already been decided by now – it just needs to be approved and announced by the NPCSC.
• Second, it’s very likely that we won’t know the outcome of the US election by the conclusion of the legislative session on November 8.
• Finally, why would the Chinese look to preemptively react to a Trump win? While additional tariffs are highly likely under a second Trump administration, they aren’t a given – and Trump’s exact approach wouldn’t be clear for several more months.

So factoring in the US election outcome just doesn’t comport with what we know about the Chinese macroeconomic policymaking process.

The upshot: We’ll finally know the details of China’s fiscal support package late next week – and it will be “quite large scale,” as senior MoF officials have now stated twice.

• Whether markets will read the announcement positively is anyone’s guess, as the Chinese have set expectations for the package exceedingly high.

Otherwise, senior Chinese leaders will be doing what the rest of the world is doing: Monitoring for the eventual outcome of the US election, and only then planning their response accordingly.

-Andrew Polk, Co-founder, Trivium China

What you missed

Corporates

On Tuesday, the EU finally confirmed it will move forward with tariffs of up to 35.3% on Chinese EV imports, asap.

• China and the EU have been wrangling over the tariffs since Brussels launched an anti-subsidy probe targeting Chinese EVs last September.
• The marathon negotiations to prevent the tariffs reportedly stalled on how to implement price undertakings, which would require Chinese EV exporters to set minimum price floors for their exports.

Tech

On Monday, the US Treasury Department finalized rules on American outbound investment restrictions on China’s tech sector, including chips, AI, and quantum computing.

• The rule will go into force on January 2, 2025.
• This rule won’t directly lead to a massive cash crunch for China’s bleeding-edge startups, but it will generate significant due diligence burdens for US investors and companies, thus scaring them away from China-connected investments.

On Friday, the National Data Administration (NDA) released a four-year action plan to develop trusted data spaces.

• A trusted data space is an ecosystem of technologies and policies that allows enterprises, government agencies, or otherwise unconnected groups to share data safely and smoothly.
• The NDA said it would cautiously explore how data spaces might be used to one day give companies access to personal data for commercial purposes, while simultaneously respecting rights to privacy.

Econ and finance

On Monday, China’s central bank (PBoC) launched a new monetary policy tool that will further diminish the relevance of the medium-term lending facility (MLF).

• The PBoC said “from now on” it will enter into outright reverse repos with a maturity of no more than one year.
• Unlike the MLF, the new reverse repos will inject liquidity without guiding interest rates.

On Tuesday, Xi Jinping delivered his annual speech to senior government and Party officials at the Central Party School.

• Xi usually delivers the speech in January, a few months after the autumn plenum. However, his address was postponed this year given the delayed Third Plenum.
• Xi’s comments acknowledged what we already know: China’s economy is in the dumps, so officials should be squarely focused on ending the year on a better note.

Politics

On Monday, the Politburo held its monthly meeting, reviewing a report on the Party disciplinary inspections that kicked off in April.

• The inspection targets included all key economic and financial agencies, such as the central bank (PBoC), finance ministry (MoF), and macro planner (NDRC).
• The Politburo was none too happy with some of the report’s findings, so it urged officials to take bolder and more effective action to tackle challenges and implement reforms.

On Monday, Xi Jinping also chaired a Politburo study session on developing China into a cultural superpower.

• Some context: Under Xi, China has seen a significant tightening of controls over the media, religious freedoms, entertainment, academia, and social initiatives.
• Our take: The Party’s increasingly restrictive stance on domestic cultural freedoms and its stifling of homegrown cultural industries have significantly diminished China’s cultural appeal abroad.

Foreign affairs

On Tuesday, Xi Jinping met with Finnish President Alexander Stubb in Beijing.

• Despite some ups and downs, Sino-Finnish bilateral relations have remained broadly positive in recent years, with Finland home to the sixth-largest stock of Chinese foreign investment in the EU – notable given its small size.
• Finland represents China’s ideal model for engagement with EU member states, where economic relations are prioritized above geopolitics.

The BRICS Summit in Kazan, Russia wrapped up last Thursday.

• The summit didn’t see any new countries admitted as full members, though the grouping did announce 13 new BRICS “partner countries.”
• Notably absent from the meeting: Any mention of a long-rumored BRICS currency.

As always, it was a busy week in China.

• Thank goodness Trivium China is here to make sure you don’t miss any of the developments that matter.