BEIJING – Many analysts have said the scale of China’s long anticipated stimulus measures is bound to depend on the outcome of the U.S. presidential election.
Investors expect Beijing to announce details of fiscal support on Friday which coincides with the end of a five day meeting of the standing committee of the National People’s Congress, China’s parliament. That meeting last year led to the rare decision to increase the fiscal deficit.
That would be a well timed meeting, if there were announcements, since voters will decide between Republican nominee Donald Trump and Democratic contender Kamala Harris in the U.S. election. Polls are due to close on Tuesday local time.
Nomura’s chief China economist, Ting Lu, said in a recent report that “the size of China’s fiscal stimulus package would be around 10 to 20 percent bigger in the case of a Trump victory versus a Harris victory.” He also made it clear that even though most of China’s problems have roots in its domestic economy, the outcome of the U.S. presidential election will have some consequences for China.
Trump has threatened to raise tariffs on U.S. imports from China by as much as 60% and up to 200% under extreme circumstances. To date, Vice President Harris has taken no actions that would dramatically depart from the Biden administration approach of denying China access to advanced technologies.
Any new tariffs would hurt exports, the single positive news that has emerged in the past year out of an economy generally lashed by a real estate downturn and weak consumer demand.
According to Zhu Bin, chief economist at Nanhua Futures, increased trade restrictions would be demanding a greater contribution from domestic consumption to drive growth. This information was imparted in a video presentation last week and translated by CNBC from his comments in Mandarin.
Zhu said, “It is for sure that if Trump wins the election, China’s domestic stimulus can only be stronger.” He thinks Trump is more likely to win an election he believes would put further downward pressure on the Chinese yuan against the U.S. dollar.
Political analysts are divided over which candidate would improve relations between China and the U.S. Trump or Harris.
From China’s perspective, Liqian Ren, head of quantitative investment at WisdomTree, says a potential presidency for Harris could offer more clarity on what is expected in future policies.
Yet that doesn’t mean Beijing will embark on aggressive stimulus. The Chinese officials are “constrained by the U.S. China competition, which puts technological progress as the No. 1 priority,” she said. “As long as that’s the goal, it probably keeps the political incentive to shore up the economy pretty measured.”
Ren expects the scope of any stimulus will be dictated more by the stock market reaction than by the result of election itself.
She also said that market volatility in China, much more pronounced compared to the United States, was bound to force the Chinese government into taking action over instability. Ren added that, compared to three or four years ago, current fluctuations in the Chinese stock market are having a much deeper impact on economic confidence.
Chinese equities tempered recent gains that surfaced in late September. On September 26, President Xi Jinping led a high level meeting with a clear directive to better implement supportive fiscal and monetary policies, while arresting the decline in the real estate sector.
The interest rates, although reduced by the People’s Bank of China, have not shown any details related to fiscal stimulus from the Ministry of Finance. The Finance Minister Lan Fo’an hinted last month that the deficit could be increased, adding that any changes would need to be approved before they are announced.
