- Investors are eagerly anticipating the revelation of China’s fiscal stimulus plans, which are expected to surface on Friday during a critical session where the National People’s Congress will conclude its five-day meeting, a gathering that previously saw a significant increase in the fiscal deficit.
- The chief China economist at Nomura, Ting Lu, projected that “the size of China’s fiscal stimulus package would be around 10~20% bigger under a Trump win than under the scenario of a Harris win,” highlighting the potential economic ramifications of the U.S. election outcome.
- Liqian Ren, who leads quantitative investment at WisdomTree, argues that the scale of China’s stimulus will be more influenced by market reactions rather than by the election’s outcome, noting that heightened volatility may prompt a more substantial response from Beijing to stabilize economic confidence.
BEIJING — Analysts indicate the magnitude of China’s eagerly awaited stimulus initiatives is likely to hinge on the upcoming U.S. presidential election results, which could shape Beijing’s fiscal strategy significantly.
On Friday, investors are keenly watching for Beijing to unveil details of its fiscal support, coinciding with the conclusion of the National People’s Congress meeting. This session holds particular importance as last year’s meeting led to a rare increase in the fiscal deficit, indicating a potential shift in economic strategy for the Chinese government.
This year, the meeting’s timing is particularly critical, as it will occur just after American voters have cast their ballots, deciding between Republican nominee Donald Trump and Democratic rival Kamala Harris. Polls across the United States are set to close Tuesday, local time.
Ting Lu, the chief China economist at Nomura, stated, “The size of China’s fiscal stimulus package would be around 10~20% bigger under a Trump win than under the scenario of a Harris win,” emphasizing the possible divergence in fiscal strategies based on leadership changes across the Pacific.
He did caution that most of China’s pressing challenges stem from domestic issues, though potential shifts arising from the U.S. election results could create additional complexities.
Trump’s stance has raised concerns, as he has threatened to increase tariffs on U.S. imports from China significantly, suggesting a rise potentially as high as 60% or even an extreme proposal of 200%. Conversely, Harris, who currently serves as vice president, has not indicated substantial changes to the Biden administration’s existing policy of limiting China’s access to advanced technologies.
Such increased tariffs could adversely affect China’s exports, a critical sector amid struggles with a sluggish real estate market and underwhelming consumer demand impacting overall economic growth.
Zhu Bin, chief economist at Nanhua Futures, highlighted that heightened trade restrictions would press China to pivot its focus toward domestic demand to spur economic growth, indicating significant adjustments ahead. In his analysis, he strongly asserted, “Without question we can be certain of one thing — if Trump wins the election, China’s domestic stimulus will only be larger, not smaller,” anticipating an increase in downward pressure on the Chinese yuan against the U.S. dollar.
Political analysts debate whether China’s relations with the U.S. could improve under a Trump or Harris administration, making the stakes of the election particularly high for both countries.
“I think at this point, probably from China’s view, a potential president Harris [makes it] easier to expect what policies likely come,” said Liqian Ren, who leads quantitative investment at WisdomTree, suggesting a preference for predictability amidst the uncertainty created by election outcomes.
However, this does not infer that Beijing will embark on expansive support measures. Ren pointed out that the Chinese authorities are grappling with the broader implications of U.S.-China competition, stressing that technological upgrade remains the top priority, which may limit the government’s readiness to stimulate the economy aggressively.
Ren further opined that the eventual scale of the stimulus will pivot not only on who occupies the White House, but rather on the reaction of the stock market post-election.
As China faces notable market volatility, this scenario might compel “China to feel more obligated to counter this volatility,” she elaborated. She contrasted current market conditions with three or four years prior, noting that today’s volatility has intensified its influence on economic confidence levels considerably.
Chinese stocks have moderated in their gains in recent weeks, following a surge in late September. During a noteworthy meeting led by Chinese President Xi Jinping on September 26, calls were made for enhanced fiscal and monetary support, aiming to arrest the decline in the real estate market.
While the People’s Bank of China has implemented interest rate cuts to spur growth, the Ministry of Finance has yet to disclose specifics regarding the highly anticipated fiscal stimulus. Recently, Finance Minister Lan Fo’an hinted at a potential increase in the deficit, stating that any significant changes would require an approval process before being made public.
How large？
Analyst predictions surrounding additional debt issuance are varied. Reports suggest that China is contemplating more than 10 trillion yuan in debt issuance over the next few years, as cited by Reuters.
While Chinese authorities may refrain from announcing a precise figure, should they opt to do so, it is anticipated to exceed 4 trillion yuan, a threshold established following the financial crisis in 2008. Zong Liang, chief researcher at Bank of China, projected that the deficit might be expanded beyond the initially targeted 4% set for this year, which was already elevated to 3.8% late last year.
WisdomTree’s Ren indicated her findings, which analyze official statements, media coverage, and investment notes, suggest that expectations surrounding stimulus are fundamentally aligned, noting it often centers around averages of about 2 trillion yuan in annual support, regardless of if it’s framed as a multi-year issuance or a more immediate one.
Consumption still in question
Ren noted, “I think people right now are focusing a lot on the topline number,” but cautioned that many overlook the actions of local governments, which are implementing strict tax collection practices that inadvertently stifle business activity. Despite signs of potential central government support, she speculates it could be “quite a while” before local authorities feel equipped to allocate sufficient cash for spending initiatives.
This year, numerous companies in China have reported receiving notices for back taxes linked to operational years extending back to 1994, revealing the long shadow of local government debt on economic performance. Previously, local governments relied on land sales to developers as a primary revenue source.
The finance ministry has recognized the urgency of addressing local government debt concerns, as reflection from analysts indicates that any forthcoming stimulus will likely prioritize bolstering banks over direct fiscal handouts to consumers.
Analysts at Citi have indicated that any consumption stimulus may emerge primarily from property sector support for the time being, positing that “more decisive consumption support could still be a realistic option under more adverse tariff scenarios,” should trade relations worsen.
**Interview with Liqian Ren, Head of Quantitative Investment at WisdomTree**
**Editor:** Thank you for joining us today, Liqian. As we anticipate China’s upcoming fiscal stimulus announcement following the National People’s Congress, how do you see the U.S. election influencing China’s economic decisions?
**Liqian Ren:** Thank you for having me. The U.S. election outcome undoubtedly weighs heavily on China’s fiscal strategy. While analysts like Ting Lu predict a larger stimulus under a Trump presidency due to potential economic volatility, I believe that China’s response will be more about market reactions than election results. If volatility spikes, Beijing may feel compelled to act more significantly to stabilize economic confidence.
**Editor:** That’s an interesting perspective. You’ve mentioned that the election may not be the sole determinative factor for the size of China’s stimulus. Can you elaborate on what you think will influence their decisions?
**Liqian Ren:** Absolutely. The current domestic challenges that China is facing play a crucial role. Regardless of who wins in the U.S., if market conditions deteriorate significantly or investor confidence declines further, China will likely need to step in to support the economy. Hence, the actual size and timing of the stimulus could depend on immediate market reactions post-election rather than just policy expectations tied to Trump or Harris.
**Editor:** With the possibility of increased tariffs from a Trump administration looming, how should we interpret Beijing’s potential fiscal actions?
**Liqian Ren:** Increased tariffs could pivot China’s focus more toward domestic consumption. If exports are under pressure, as they would be with higher tariffs, China would need to stimulate local demand to sustain growth. This scenario could indeed drive an increase in stimulus, but the government must also balance this with the necessity of technological advancements and other structural reforms, which remain high on their agenda.
**Editor:** Looking ahead, what are your thoughts on how the financial markets might react to China’s stimulus announcement?
**Liqian Ren:** The markets are likely to respond to both the scale of the stimulus and its alignment with addressing current economic pressures like the sluggish real estate market. If the announcement provides a strong sense of support and confidence, we may see a positive reaction in the stock market. Conversely, if investors view the measures as insufficient, we could witness increased volatility.
**Editor:** Thank you, Liqian, for providing your insights. It certainly seems like there are many factors at play, and it will be fascinating to see how all these elements unfold in the coming days.
**Liqian Ren:** Thank you for having me. Yes, it’s a critical time for both China and the global economy, and I will be watching closely how things evolve!
