China | What could go wrong with China’s new stimulus package?

Summary

In this paper, we analyze what could go wrong in implementing the current jumbo size stimulus package to the Chinese economy and how to avoid these traps.

Key points

• Key points:
• China's policymakers’ new strategy is to unveil a stimulus package to ensure that growth remains resilient to both internal and external adverse shocks, including Trump's tariffs on Chinese exports.
• China's new stimulus package carries significant potential but also comes with a set of risks and challenges. In light of these, market investors have only given lukewarm reactions to the strong policy signals.
• At the current juncture, the authorities need to carefully avert various policy traps, ranging from designing policy packages to its implementation, to maximizing the effectiveness of the new stimulus.
• The traps during implementation include：(i) Insufficient Size of Fiscal Stimulus Measures; (ii) Inefficient Allocation of Stimulus Funds: Investment versus Consumption; (iii)Slow pace of Policy Implementations; (iv) Lack of Incentives for Bureaucrats’ Implementation (v) Counterproductive Communication Between the Authorities and the Market (vi) Premature Withdrawal of Stimulus

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