As China’s top legislative body, the National People’s Congress (NPC), approved a 10 trillion yuan ($1.4 trillion) package on Friday to help local governments address hidden debt, investors were left with mixed feelings. Many had hoped for a more substantial fiscal boost amid the anticipation of Donald Trump’s return to the U.S. presidency, which could renew Sino-U.S. trade tensions. The Standing Committee’s decision, while significant, fell short of the aggressive support some had expected as a cushion against potential trade barriers under a second Trump administration.

The 10 trillion yuan package will allow local governments to reduce their off-balance-sheet debt, but many analysts say it’s not enough to drive significant economic growth. China’s Finance Minister, Lan Foan, hinted that additional stimulus measures could be forthcoming, but provided no specifics, leaving investors wary about whether this would be enough to meet the nation’s 5% GDP growth target.

Economic Challenges Amid Trump’s Proposed Tariffs

Trump’s re-election has reignited concerns over trade between the U.S. and China. During his campaign, Trump pledged to impose a 60% blanket tariff on U.S. imports from China, a move that could escalate trade tensions and impact China’s exports. This policy stance underscores a potential return to the intense trade standoffs that defined Trump’s first term, which saw tariffs on hundreds of billions of dollars in goods and deepened economic rifts between the world’s two largest economies.

The current package, as announced by the NPC, is designed primarily to address debt risks within China, especially in local governments grappling with hidden or off-balance-sheet debt. Analysts, however, believe a much larger stimulus is necessary to revive consumer confidence, spur economic growth, and safeguard against potential fallout from increased U.S. tariffs. Carlos Casanova, senior economist for Asia at UBP, remarked that a 23 trillion yuan ($3.2 trillion) package might be needed to resolve China’s property and debt issues effectively—an amount equal to about 15% of China’s economy.

“China is likely holding back until they better understand Trump’s plans,” Casanova added, noting that Beijing could be conserving its economic firepower for a more tailored response to Trump’s trade policies.

China’s Strategy for a Resilient Economy

China has been actively rolling out measures to stabilize its economy amid a downturn in the property market and weakened consumer confidence. Since September, authorities have introduced interest rate cuts, launched targeted support for the property market, and initiated an unprecedented 800 billion yuan ($111.6 billion) rescue package for the stock market.

Despite these efforts, stock performance has been uneven. After a rally in late September, prices have slowed, with the blue-chip CSI 300 Index showing gains, while the Hang Seng Index in Hong Kong fell nearly 10% from its October peak. This mixed performance reflects investor caution about China’s growth outlook, particularly in light of potential new trade restrictions from the U.S.

Robert St Clair, head of investment strategy at Fullerton Fund Management in Singapore, remains optimistic, stating, “China is in a good position to navigate tariff risks going forward.” He highlighted that the Chinese economy is better insulated against trade barriers than it was eight years ago, partly due to a shift towards self-reliance in key industries, including technology and manufacturing.

Shifting Global Dynamics: Opportunity Amid Tension

Some investors see Trump’s America First policy as potentially advantageous for China in the long term. A more inward-focused U.S. could open opportunities for China to strengthen its influence in the Asia-Pacific region and forge deeper economic ties with other global partners. Wan Chengshui, head of investment at Guangdong-based Golden Glede, argued that “Trump’s policy targets not only China but also the EU, Japan, South Korea, and Taiwan, which could help China make breakthroughs against Western trade restrictions.”

This shift in the global trade landscape may benefit China as it pursues its own trade and investment agreements, like the Regional Comprehensive Economic Partnership (RCEP) with other Asia-Pacific nations. By reducing its reliance on U.S. trade and strengthening its ties with other markets, China could mitigate some of the adverse effects of any new tariffs that Trump might impose.

Outlook: Investors Watch for Additional Stimulus

With Trump’s possible tariffs in mind, investors are now focused on whether China will introduce more aggressive economic stimulus measures. The NPC’s 10 trillion yuan package addresses part of the debt issue but may fall short in stimulating the broader economy and alleviating fears of trade-related impacts.

The coming months could see Beijing adopting more substantial measures as policymakers gauge the Trump administration’s trade policies. Investors remain cautiously optimistic, hoping for clearer strategies from both the U.S. and Chinese governments, as geopolitical tensions and economic dependencies continue to shape the global market.

(Adapted from CNBCTV18.com)

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy