Will China’s Latest Stimulus Measures Make a Difference?

Beijing went big last month, unveiling more aggressive stimulus aimed at reviving China’s struggling economy. Many of the fresh measures are focused on shoring up the property sector. These include cutting interest rates and reserve requirement ratios for financial institutions, two moves that could facilitate access to credit. The central government also announced plans to recapitalize financial institutions and support local governments. So far the markets have responded favourably to these decisions, but this optimism is fragile. Some people would like to see more government intervention in the economy and a significant increase in spending. While this could provide a boost in the short term, it’s less clear what the effects would be over the long term. In our view, China’s problems run deep and structural changes are needed to sustainably lift the economy.