Earlier this week, China released its economic recovery plans, with no stimulus package included, upsetting investors.
Now, investors are gaining confidence that China will announce a fiscal stimulus package of up to $283 billion (2 trillion yuan).
Bloomberg reported that analysts believe the upcoming stimulus, mostly coming from government bonds, will help boost its economy further. At the same time, it will also serve as a guide for their future economic growth strategy, which will lessen their reliance on debt-driven investments.
Economists are supporting the stimulus plan since it will focus on supporting households and local businesses, rather than igniting growth from real estate investment that often slows down after a few months. China has already cut interest rates and improved support for property and stock markets, but these efforts haven't been restoring confidence from investors and Chinese residents.
China's Upcoming Fiscal Stimulus Package
In response to the absence of a fiscal stimulus package in the earlier economic recovery plans, Reuters shared that economists recommend Chinese government agencies to closely monitor stock market reactions before announcing new policies to prevent creating unrealistic expectations that could harm market confidence.
The stimulus will help boost public spending, which slowed down after the pandemic, and may also include subsidies for vulnerable groups. This will align with China's goal to support families with children and strengthen the social safety net while providing subsidies for purchasing consumer goods and cars.
With this approach, China is looking to rebalance the economy and reduce reliance on exports for growth, especially due to increasing trade tensions, according to VCPost.
Over the years, the Chinese economy has depended on infrastructure investment to stimulate the economy, but have proven to be less effective in recent years. Economists believe this is an innovative solution, and with increased public spending due to the new stimulus package, they can also ease the property sector.
Looking ahead, besides the $283 billion (2 trillion yuan) bonds, China also plans to issue $1.25 trillion (9 trillion yuan) to address budget shortfall with additional borrowing to be approved by the National People's Congress.
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