The news managed to spark a 2/3% uptick in the Shanghai - Shenzen CSI 300 index of the largest listed market caps. That follows yesterday's record low in the same index.
From Bloomberg via Yahoo Finance, December 14/15:
China extended its support for the economy with the largest injection of medium-term policy loans ever, as the nation’s growth recovery remained fragile amid a housing slump and weak demand.
The People’s Bank of China offered commercial lenders a net 800 billion yuan ($112 billion) of one-year loans while keeping the interest rate on the funding unchanged. The injection was more than twice the amount seen by analysts queried in a Bloomberg survey and was also larger than the infusion last month.
China’s economy has struggled this year as a rebound from restrictive Covid Zero policies proved to be weaker than expected and the property crisis deepened. The nation reported mixed data on Friday, with its industrial production beating expectations but retail sales trailing estimates in November.
The continuation of support underscores Beijing’s preference to keep liquidity ample, after the nation in October made a rare move to raise the fiscal deficit ratio to a three-decade high and allowed the government to sell 1 trillion yuan of additional sovereign bonds within the year. Sudden cash tightness caused by seasonal factors and the debt issuance spooked investors in recent months.
“The large amount of MLF injection seems to suggest less chance of a reserve-requirement ratio cut in the near term, and it seems that the PBOC is probably still prioritizing foreign-exchange stability and refrains from pursuing aggressive stimulus,” said Michelle Lam, Greater China economist at Societe Generale SA. “However, with domestic demand still on a shaky ground, we think there will still be more RRR and interest rate cuts next year.”
The PBOC pumped 1.45 trillion yuan via its medium-term lending facility on Friday, exceeding the 650 billion yuan coming due in December.
Adding to the support, Chinese authorities earlier relaxed homebuying curbs in Beijing and Shanghai, extending efforts seen in major cities to stem an unprecedented housing downturn. The nation’s capital cut the down-payment ratio for second homes to 40% or 50%, depending on the locations of the properties. Shanghai also made a similar move.
China’s Mixed Economic Data Unlikely to Quash Growth Concerns
Traders have long been debating how the PBOC should ease its policy to aid growth. While some argue Beijing should use more targeted tools to inject liquidity such as the MLF, others say the central bank should lower the amount of cash lenders must hold in reserve to release cheaper and longer-term funding.
What’s for sure is that fiscal stimulus will play a bigger role next year. In a meeting earlier this week, China’s policymakers called for “appropriately stepped up” fiscal measures, as well as “prudent” monetary policy. That echoed a message from a huddle of the party’s 24-member Politburo last week, which was seen as taking a pro-growth stance.
The market reacted positively to the liquidity injections and other support measures. China stocks rose, with those in Hong Kong leading gains in Asia, and the Hang Seng China Enterprises Index was up more than 3%. The yuan pared losses in onshore trading....
....MUCH MORE
Also at Yahoo Finance, this time from Reuters:
Exclusive-China to run budget gap of 3% of GDP in 2024, issue special debt -sourcesHow are they going to get get a bull market out of that? By comparison President Biden's budget calls for a deficit equivalent to 6.8% of GDP for FY 2024. Table S–1, page 135 of Budget of the U.S. Government F I S C A L Y E A R 2 0 2 4
And according to the U.S. Treasury's Monthly Statement the government is actually running ahead of the deficit schedule, racking up $381 Billion for the first two months of the fiscal year, including the highest ever month-of-November deficit.
That's how you get a booming economy.
Unfortunately the $1.846 trillion 2024 deficit is only projected to buy $902 billion of GDP growth, from $26,336 trillion in 2023 to $27,238 in 2024 (again, table S-1) so we run into an old nemesis.
From July 2021's "Diminishing Returns: Getting Less And Less For Each Dollar of Deficit Spending Means Disaster Is Locked In"
This is a real problem, whether you call it "Marginal Productivity of Debt" or "Debt Saturation" or "Bang-for-the-Buck"*, we are running faster and faster just to stay in place. This is not a new phenomena, the piddly 6.5% GDP growth we just saw, despite the trillions and trillions in new debt is just the latest example...
Now I know the President's budget is on a fiscal year and the GDP numbers are on a calendar year but the point withstands that petty quibble compared to the importance of the original question:
"Why does the U.S. economy need over $100 billion of stimulus per month?..."
*Years ago we called it Sweet, sweet Biden love in reference to the fact the former Vice-President was overseer of the ARRA stimulus in 2009 - 10 and the Recovery Summer in 2010.....I don't know why I was channeling Chef from South Park
If interested see also the Congressional Budget Office on December 12, 2023.
