Stimulus, stimulus, stimulus! Regarding China, conventional Western wisdom fixates on government stimulus — and worries that much more is necessary to rev up the middle kingdom’s economic engine. Many bemoan that the tens of trillions of yuan pledged this year still pale in comparison with 2020’s measures — let alone 2008’s sweeping financial crisis aid. Some have even called for direct payments to consumers. What they miss is that the Chinese economy doesn’t need that much help now. Re-openings will provide all the juice needed to get businesses humming again, provided another round of new Covid outbreaks doesn’t interfere. Here is how to see the overlooked bullish reality few outside China can fathom.
The emergency restrictions enacted to control Covid-19 outbreaks are, unfortunately, punitive. They temporarily pinch the economy, hard. The data supports what you have seen with your own eyes. In April, retail sales tumbled 11.1% year-on-year amid shop closures in Shanghai and Beijing. Industrial production sank 2.9%. Purchasing managers’ indexes (PMIs) showed both the services and manufacturing sectors contracting in March, April and May. Covid restrictions — combined with the government’s efforts to curtail real estate market excess — sent April’s residential building purchases tumbling 32.2% year-on-year. Spending on commercial buildings was 29.5% lower, furthering fears of a Chinese property market collapse.
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