China’s grand plan to revive its economy hinges on a fundamental miscalculation: the idea that sparking a bull market will magically boost domestic consumption.
Here's the problem: Chinese households are already under immense financial strain, squeezed out of the nation’s $20 trillion GDP pie like they’re not even invited to the table. And let’s not forget, domestic consumption as a share of GDP is directly tied to households' share of national income—which, by the way, is abysmally low for a country of this size. It’s hard to fuel an economy on spending when households are barely scraping by.
After years of disastrous investments in failed private lending schemes, bank collapses, and a property bubble that burst with all the subtlety of a detonated minefield, it's no surprise households are reluctant to open their wallets.
The government's corporate crackdowns only further eroded confidence, leaving households squeezed even more.
So, what's Beijing’s brilliant idea? Instead of fixing the root problem—actually transferring wealth from corporations and the government to the people—Chinese policymakers think they can kick-start consumption by inflating stock prices and hoping for a "wealth effect." Because apparently, who needs real money when you can just make people feel rich, right?
This stimulus package is woefully vague on any real wealth redistribution mechanisms. Instead, it’s all about optics—put the cart before the horse, inflate stock prices, and see if households magically start spending.
After all, nothing screams "financial stability" like an artificial bull market. What could go wrong?
Of course, the influx of foreign money is fueling this delusion for now. But when the cash tap inevitably dries up, both local and foreign investors will find themselves in a high-stakes game of musical chairs, where most are guaranteed to lose.
And, as usual, households, the very group that should have been at the center of economic policy, will be left holding the bag.
If this is China’s grand economic strategy, they might as well start printing "Pipe Dreams of Prosperity" on their next set of stimulus checks.
~~ anindya.banerjee@kotak.com
Here's the problem: Chinese households are already under immense financial strain, squeezed out of the nation’s $20 trillion GDP pie like they’re not even invited to the table. And let’s not forget, domestic consumption as a share of GDP is directly tied to households' share of national income—which, by the way, is abysmally low for a country of this size. It’s hard to fuel an economy on spending when households are barely scraping by.
After years of disastrous investments in failed private lending schemes, bank collapses, and a property bubble that burst with all the subtlety of a detonated minefield, it's no surprise households are reluctant to open their wallets.
The government's corporate crackdowns only further eroded confidence, leaving households squeezed even more.
So, what's Beijing’s brilliant idea? Instead of fixing the root problem—actually transferring wealth from corporations and the government to the people—Chinese policymakers think they can kick-start consumption by inflating stock prices and hoping for a "wealth effect." Because apparently, who needs real money when you can just make people feel rich, right?
This stimulus package is woefully vague on any real wealth redistribution mechanisms. Instead, it’s all about optics—put the cart before the horse, inflate stock prices, and see if households magically start spending.
After all, nothing screams "financial stability" like an artificial bull market. What could go wrong?
Of course, the influx of foreign money is fueling this delusion for now. But when the cash tap inevitably dries up, both local and foreign investors will find themselves in a high-stakes game of musical chairs, where most are guaranteed to lose.
And, as usual, households, the very group that should have been at the center of economic policy, will be left holding the bag.
If this is China’s grand economic strategy, they might as well start printing "Pipe Dreams of Prosperity" on their next set of stimulus checks.
~~ anindya.banerjee@kotak.com