China Has Taken Out an Insurance Policy, Not a Bazooka
Beijing is looking less to energize household consumption confidence and more to limit an economic slowdown.
What’s the real picture?
Photographer: Qilai Shen/BloombergWith many having characterized China as “uninvestible” just a few months ago, investors’ enthusiastic response in recent weeks to a perceived shift in the authorities’ policy reaction function is also likely to be an overreaction. It grossly oversimplifies the competing priorities of a country with internal imbalances, inefficient resource allocation channels, and exposure to further geopolitical tensions.
“Buy everything China” is how one investor argued should be the markets’ reply to signs out of Beijing that the leadership was more open to adopting major stimulus measures. The value of Chinese stocks soared by almost 40% in 10 trading days. Massive inflows of foreign investor funds suddenly replaced what had been persistent and cumulatively large outflows for well over a year.