The biggest development of the week is unquestionably the announcement of the massive stimulus package by the PBoC. The one thing I’ve been very critical of throughout this year is the minimal (and arguably meaningless) measure that the central bank had taken in order to give the economy a boost. Minor changes to interest rates and mortgage down payments did little to change the country’s economic trajectory. This one might.
The broadness and decisiveness of this package, which includes multiple rate cuts, increased lending facilities and support for the equity market, will likely be much more sweeping and impactful. Instead of just affecting potential borrowers, this package should deliver assistance to current borrowers, investors, financial institutions and households, in general. It’s the type of comprehensive measure that the markets and the economy have been waiting for for a while and now they’re going to finally get it.
The big question now is whether or not it will work. Chinese consumer activity has never really picked up in the way most people thought it would coming out of lifting the country’s COVID restrictions. There was a boost for a short while, but it quickly faded as the real estate market began to crumble and financial conditions grew more perilous. Initial reactions this time around, however, appear to be more positive. Chinese stocks have rocketed higher and commodity prices, which would reflect the anticipation of increased Chinese demand, have also been rising. China is one of the world’s largest consumers of industrial metals and to see those prices shooting higher is a sign that the markets are optimistic.
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