China: Targeted stimulus supports growth – Societe Generale

Societe Generale strategist Michelle Lam analyzes recent Chinese policy moves, noting that new property and monetary easing should keep growth on track and help China meet its Gross Domestic Product (GDP) target at the lower end of the range. She highlights limited impact from mortgage subsidies, constrained infrastructure spending due to local government finances, and a K-shaped recovery driven by technology and manufacturing rather than household demand.

Incremental easing and structural limits

"In response to the activity slowdown, the Chinese government finally rolled out a fresh round of targeted property and monetary easing measures to stabilize growth last week. While these measures should be sufficient to keep growth on track and help China meet this year's GDP target, they fall well short of addressing the economy's deeper structural demand weaknesses."

"These measures should lead to a recovery in FAI on the coming months. But the weakness in fixed-asset investment this year highlights a growing disconnect between the central government's desire to support growth through infrastructure spending and the hard reality of increasingly binding budget constraints at the local government level."

"With these measures and the State Council recently reiterating the need to "work hard to achieve this year's development targets", we expect China to meet its GDP target at the lower end of the range, at 4.5%. Such targeted measures also mean the urgency for the PBoC to cut rates has much fallen, especially in light of Fed rate hikes."

"Growth has been driven primarily by technology investment and manufacturing upgrades, while household demand continues to lag. Until policymakers shift more forcefully toward demand-side measures that directly support households, the economy is likely to remain stuck in structural malaise."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)