Finance

China’s fiscal stimulus is losing its effectiveness, S&P says

Published

1 year ago

April 19, 2024

Pictured here is a commercial residential property under construction on March 20, 2024, in Nanning, capital of the Guangxi Zhuang autonomous region in south China.

Future Publishing | Future Publishing | Getty Images

BEIJING — China’s fiscal stimulus is losing its effectiveness and is more of a strategy to buy time for industrial and consumption policies, S&P Global Ratings senior analyst Yunbang Xu said in a report Thursday.

The analysis used growth in government spending to measure fiscal stimulus.

“In our view, fiscal stimulus is a buy-time strategy that could have some longer-term benefits, if projects are focused on reviving consumption or industrial upgrades that increase value-add,” Xu said.

China has set a target of around 5% GDP growth this year, a goal many analysts have said is ambitious given the level of announced stimulus. The head of the top economic planning agency said in March that China would “strengthen macroeconomic policies” and increase coordination among fiscal, monetary, employment, industrial and regional policies.

High debt levels limit how much fiscal stimulus a local government can undertake, regardless of whether a city is considered a high or low-income region, the S&P report said.

Public debt as a share of GDP can range from around 20% for the high-income city of Shenzhen, to 140% for the far smaller, low-income city of Bazhong in southwestern Sichuan province, the report said.

92% of investment funds have increased their exposure to China: HSBC

“Given fiscal constraints and diminishing effectiveness, we expect local governments will focus on reducing red tape and taking other measures to improve business environments and support long-term growth and living standards,” S&P’s Xu said.

“Investment is less effective amid [the] drastic property sector slowdown,” Xu added.

Fixed asset investment for the year so far picked up pace in March versus the first two months of the year, thanks to an acceleration of investment in manufacturing, according to official data released this week. Investment in infrastructure slowed its growth, while that into real estate dropped further.

The Chinese government earlier this year announced plans to bolster domestic demand with subsidies and other incentives for equipment upgrades and consumer product trade-ins. The measures are officially expected to create well over 5 trillion yuan ($704.23 billion) in annual spending on equipment.

Officials told reporters last week that on the fiscal front, the central government would provide “strong support” for such upgrades.

S&P found that local governments’ fiscal stimulus has generally been bigger and more effective in richer cities, based on data from 2020 to 2022.

“Higher-income cities have a lead because they are less vulnerable to declines in property markets, have stronger industrial bases, and their consumption is more resilient in downturns,” Xu said in the report. “Industry, consumption and investment will remain the key growth drivers going forward.”

“Higher-tech sectors will continue to drive China’s industrial upgrade and anchor long-term economic growth,” Xu said. “That said, overcapacity in some sectors could spark price pain in the near term.”

Finance

U.S.-China agree on framework to implement Geneva trade consensus

Published

58 minutes ago

June 10, 2025

Business Finance News

U.S. Treasury Secretary Scott Bessent speaks with the media as he departs to return to the U.S., while trade talks between the U.S. and China continue, in London, Britain, June 10, 2025.

Toby Melville | Reuters

The U.S. and China have reached consensus on trade, representatives from both sides said following a second day of high-level talks in London, according to an NBC transcript.

“We have reached a framework to implement the Geneva consensus and the call between the two presidents,” U.S. Commerce Secretary Howard Lutnick said.

That echoed comments from the Chinese side, shared via a translator.

Lutnick said he and U.S. Trade Representative Jamieson Greer will head back to Washington, D.C., to “make sure President Trump approves” the framework. If Xi also approves it, then “we will implement the framework,” Lutnick said.

Earlier, U.S. Treasury Secretary Scott Bessent told reporters he was headed back to the U.S. in order to testify before Congress on Wednesday.

This is breaking news. Please check back for updates.

Finance

Gundlach says to buy international stocks on dollar’s ‘secular decline’

Published

3 hours ago

June 10, 2025

Business Finance News

Jeffrey Gundlach speaking at the 2019 Sohn Conference in New York on May 6, 2019.

Adam Jeffery | CNBC

DoubleLine Capital CEO Jeffrey Gundlach said Tuesday that international stocks will continue to outshine U.S. equities on the back of what he believes to be the dollar’s secular downtrend.

“I think the trade is to not own U.S. stocks, but to own stocks in the rest of the world. It’s certainly working,” Gundlach said in an investor webcast. “The dollar is now in what I think is the beginning of [a] secular decline.”

Gundlach, whose firm managed about $95 billion at the end of 2024, said dollar-based investors who buy foreign stocks could enjoy “a double barreled wind” if the greenback declines against foreign currencies and international equities outperform.

The dollar has weakened in 2025 as Trump’s aggressive trade policies dented sentiment toward U.S. assets and triggered a reevaluation of the greenback’s dominant role in global commerce. The ICE U.S. Dollar Index is down about 8% this year.

“I think it’s perfectly sensible to invest in a few emerging market countries, and I would still rather choose India as the long term hold there,” Gundlach said. “But there’s nothing wrong with certain Southeast Asian countries, or perhaps even Mexico and Latin America.”

The widely-followed investor noted that foreigners invested in the United States could also be holding back committing additional capital due to heightened geopolitical tensions, and that could create another tailwind for international markets.

“If that’s reversing, then there’s a lot of selling that can happen. And this is one of the reasons that I advocate ex U.S. stocks versus U.S. stocks,” he said.

The investor has been negative on the U.S. markets and economy for some time, saying a number of recession indicators are starting to “blink red.”

Gundlach predicted that the Federal Reserve will stay put on interest rates at its policy meeting next week even as current inflation is “quite low.”

He estimated that inflation is likely to end 2025 at roughly 3%, although he acknowledged the difficulty in predicting future price pressures due to the lack of clarity in President Donald Trump’s tariff policy.