Asia wrap: Beware of the China stimulus syndrome

China's repeated declarations to stimulate its economy have largely not been followed by substantive actions. Despite promises made at the Politburo meeting in late September and reiterated in December to enhance fiscal spending and stabilize the real estate and stock markets, tangible results have been scarce. While pivotal in tone-setting, the most recent Central Economic Work Conference will unlikely deviate from this pattern by offering specific measures.

A local debt swap program announced in November, totalling 10 trillion yuan, was positioned as a fiscal stimulus but fell short as it involved no new funding. This has fueled skepticism about Beijing's readiness to undertake significant financial interventions amidst fears that further fiscal deficits could trigger a debt crisis. The property market struggles, particularly in smaller cities where oversupply and unfinished housing projects persist, contrasting with some stabilization in top-tier cities like Beijing and Shanghai.

Another point of contention is Beijing's bureaucracy's effectiveness. While traditionally concrete economic strategies are delineated at the National People's Congress in March, President Xi Jinping's administration has shown a willingness to break from past practices. However, there seems to be an increasing reliance on broad, optimistic promises to boost market sentiment rather than concrete policy shifts.

On the surface, there may seem to be some stabilization in property prices in major cities and a resilient stock market buoyed by positive market sentiment. Yet, these are precarious and may not withstand broader economic pressures. Furthermore, recent political upheavals, such as investigations into high-ranking officials, raise concerns about governance and the effectiveness of Xi's leadership circle, suggesting that the top echelons of power may be more focused on loyalty than capability.

This backdrop casts doubt on China's leadership's ability to implement the robust economic reforms needed to steer the country away from a deflationary trajectory and restore robust economic growth. Relying on grand promises rather than decisive actions may not suffice to invigorate the "animal spirits" necessary for a genuine economic turnaround.