Smart money’s looking beyond China stimulus debate

As Chinese stocks get their groove back, markets are grappling anew with tension between President Xi Jinping’s long-term policy priorities and investors’ hunger for short-run stimulus.

The conflict between the long and short views is nothing new. For decades, the “Washington Consensus” gang has advised Beijing to recalibrate its unbalanced economy, which free market advocates see as too reliant on giant, opaque state-owned enterprises and the vast subsidies that sustain them.

But Xi’s efforts to do just that have often collided with anxious investors who seem increasingly unwilling to give Beijing the space needed to get under the hood and overhaul its US$17 trillion economy.

Until now, perhaps. Over the weekend, the friction between Team Xi and impatient markets was on stark display.

On Saturday (October 12), Xi’s Ministry of Finance (MOF) held an unscheduled press conference that had markets buzzing about a possible huge new stimulus jolt to ensure China hits its 5% economic growth target for 2024 and fresh steps to combat increasingly entrenched deflation.

When MOF focused on broader reform themes and declined to offer a specific price tag on the dangled stimulus, futures markets slid. Yet by Monday, stocks rose.

Investors concluded that even if Beijing isn’t deploying its massive stimulus “bazooka,” the MOF’s latest statements reflect the pragmatism markets have long-craved from Xi’s inner circle.

Economist Harry Murphy Cruise at Moody’s Analytics said the weekend announcement “ticked most of the right boxes, but it lacked detail on the scale and scope of new spending,” noting that “we expect more supports to be announced through the remainder of the year.”

Economist Zhiwei Zhang, president and chief economist at