China's Economy In Crisis: Desperate $850 Billion Stimulus Package Unveiled
China has resorted to some desperate moves in an attempt to save its tanking economy, which threatens to take down Australia with it.
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For the past several weeks, the investment world has been agog at the wildest rally since 2008 in Chinese equities.
Triggered by a new round of stimulus, the price surge reached as high as 60 per cent in a week in the Hong Kong technology bourse.
But yesterday, the same crashed the most in a single day since 2008, down -15 percent.
What gives?
Policy-driven market
We very occasionally witness such booms and busts in developed market stocks, but it happens more regularly in China because it is more a policy-driven than a profits-driven market.
Chinese stocks rise and fall on the instructions of the Chinese Communist Party and, in particular, Xi Jinping, not the basis of capital allocation decisions.
Given Xi is a dictator, that narrows the knowledge you need for the direction of stocks to whatever he is thinking.
This makes investment in China a ludicrous game of guessing what the dictator had for breakfast or which side of the bed he got out of.
‘Chinese stocks rise and fall on the instructions of the Chinese Communist Party and, in particular, Xi Jinping’. Picture: Vincent Thian/Pool/AFP
‘Chinese stocks rise and fall on the instructions of the Chinese Communist Party and, in particular, Xi Jinping’. Picture: Vincent Thian/Pool/AFP
It is uninvestable in traditional terms, until Xi makes his thoughts known, and for a while markets go crazy trying to follow his instructions – only to give up again shortly afterwards.
Policy-driven economy
A similar argument can be made about the broader Chinese economy.
Gone are the days of automatic growth based upon favourable catch-up dynamics like demographics, urbanisation, market share gains in exports and liberalisation.
These days, demographics and urbanisation are exhausted, leading to a perpetual property bust.
Exports are under attack from developed markets fed up with Chinese mercantilism.
Liberalisation is in hard reverse as the CCP takes ever stronger control of the economy.
Chinese growth has stalled and it only gets a kick along when, like stocks, Xi gets out of the right side of the bed.
Stimmies not what these used to be
But even Xi’s good days are a far cry from the heady days of Australian mining booms.
The latest round of stimulus has an impressive 4 trillion yuan price tag, but virtually none of it will aid Aussie commodities.
800 billion yuan for stocks. 850 billion yuan bank liquidity. 150 billion yuan mortgage cuts. 2 trillion yuan for local government debt swaps and household handouts.
$850 billion Australian dollars of the good stuff.
Except, look closely and there is nothing there: nobody wants to borrow, households will save handouts, local governments are out of projects, the stock market adds nothing to real activity.
It is all about asset prices. Inflating stock prices and stabilising housing prices.
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This production uses an automated voice-over to assist viewers.
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