JP Morgan analysts have outlined what’s needed from China. The stimulus measures intended to be implemented, announced by the People’s Bank of China and other authorities on Tuesday, are not enough.
JPM say that while policy adjustments in China have been gradual and calibrated so far, more substantial actions may be required to achieve the government’s 5% GDP growth target for this year.
Some key measures that could be considered beyond the baseline assumptions include:
- Additional fiscal support from the central government, beyond the March budget, to help alleviate fiscal stresses on local governments or boost domestic demand.
- Larger-scale cuts to policy interest rates.
- A comprehensive and forceful housing stabilization plan, such as a large real estate stability fund or central government/central bank led funding package to support developers, housing inventory drawdown, and public housing projects.
Importantly, policymakers may also need to rebalance their approach, providing more balanced support between consumption and investment, as well as upgrading both the service and manufacturing sectors. Signs of a more benign attitude towards gaming and education companies, along with the introduction of mortgage refinancing, could indicate a shift in this direction.
Only if such policy recalibration is expanded and perceived as sustainable, it may help restore market confidence and unlock further growth potential in the Chinese economy.