China towards a recovery plan, the American election in the lead

The main officials of the Chinese Parliament have been meeting since Monday to develop a recovery plan which, according to analysts, could be further consolidated if Donald Trump wins the American presidential election this week.

Pressured by the situation and by a number of economists, China has announced several rounds of measures in recent weeks, including rate cuts and the easing of restrictions on home purchases.

After a surge in the stock market fueled by the hope of a major recovery plan, optimism has fallen somewhat in the face of promises and policies deemed not strong enough by the markets – which were hoping for a large quantified investment.

Will this long-awaited announcement come this week?

Analysts have their eyes on the meeting, which opened Monday, from “Standing Committee of the National People’s Congress”the highest body of parliament, headed by Zhao Leji – the number three in the Chinese government.

This standing committee must examine and approve all legislation, particularly that relating to the budget.

“We expect more details on the proposals that will be adopted”says Heron Lim, analyst for Moody’s Analytics, particularly on “how this additional funding would be allocated to address short-term economic problems”.

Nomura economists expect lawmakers to approve a supplementary budget of around 1 trillion yuan (129 billion euros) this week, mainly aimed at indebted local governments.

The Trump effect

Analysts also anticipate exceptional aid of 1,000 billion yuan from Beijing for banks to resolve the problem of non-performing loans over the past four years.

“A lot of money will be used to cover losses”souligne Alicia Garcia Herrero, from Natixis.

“It’s not really going to be intended to stimulate growth. »

Potential concrete measures should be announced on Friday, at the end of the meeting. By then, the results of the Donald Trump-Kamala Harris fight for the White House should be known.

“We believe the US election results will have some influence on the scale of Beijing’s recovery plan”indicates in a note Ting Lu, Nomura’s chief economist for China.

Riding on anti-Chinese sentiment in the American political class, the two candidates pledged to continue to put Beijing under pressure. Donald Trump has promised to impose tariffs of 60% on all Chinese products entering the United States.

At Nomura, we therefore expect China to adjust its recovery measures depending on the electoral result.

“The scale of fiscal stimulus measures (…) could be 10 to 20% higher in the event of a Trump victory”writes Ting Lu.

More “the main challenges for Beijing come from China rather than abroad”he emphasizes.

“Poor distribution”

China is faced with sluggish household consumption, a real estate crisis and galloping public debt. So many factors that threaten the GDP increase objective “around 5%” that the government has set for 2024.

Long an essential engine of growth for the Asian giant, real estate is today struggling with the high debt of developers.

The average price of new homes rose slightly last month, according to the China Index Academy, after several years of falling.

But many properties are still unfinished or unsold. Their buyout could cost Beijing up to 3.3 trillion yuan (426 billion euros), according to Natixis estimates.

The situation in real estate is weighing on household confidence.

“The average Chinese consumer who has a home loan does not feel that their purchasing power is increasing”underlines Heron Lim of Moody’s Analytics.

The thorny issue of local governments’ management of their debt will also be on the agenda for this week’s meeting.

But China’s economic woes are not limited to empty homes and less consumption.

“The economy as a whole is losing productivity due to poor distribution of public money”notes Alicia Garcia Herrero, particularly in matters of industrial policy and subsidies.

“All this really needs to be changed”she emphasizes.