China has announced its largest economic stimulus since the pandemic, causing significant effects on global stocks and commodities. The CSI 300, China’s benchmark index, surged 4.3%, while the renminbi dropped 0.6%. Oil skyrocketed over 4.5% to a decade-plus high, and copper futures extended their gains.
The Chinese government will have to act “very quickly in the weeks ahead to implement additional measures if they wish to get to the 5 per cent target”https://t.co/IjXIrC2nwj via @ft
— Oliver Stuenkel ?? (@OliverStuenkel) September 24, 2024
China stepped up measures to shore up its beleaguered property market. The plan underscores Beijing’s urgency to stem a housing-led slowdown. https://t.co/JQZAZctETV
— Javier Blas (@JavierBlas) September 24, 2024
The stimulus, aimed at reviving China’s economy from a slump caused by a shaky property market and deflationary pressures, includes over $325 billion in measures. The People’s Bank of China cut the reserve requirement ratio for banks, freeing up about $142 billion in short-term liquidity. The plan also includes lowering interest rates and prioritizing mortgage relief for around 50 million households.
A $71 billion stock market stabilization program was introduced to shore up China’s ailing stock market.
#China's central bank has unveiled a major package of measures aimed at reviving the country's flagging economy https://t.co/OrzliwVfHG
— Felipe Sahagún (@sahagunfelipe) September 24, 2024
china’s economic stimulus impact
However, China’s track record with big stimulus pushes has been mixed, with past efforts leading to unsustainable debt, stock market crashes, and property sector bubbles.
Many speculate that fiscal policy could be the next lever Beijing pulls, potentially increasing government spending on infrastructure. This could have global ramifications, particularly for commodities, impacting US manufacturing, energy sectors, supply chains, and raw material pricing.
China's credit bazooka just doesn't matter as much to the rest of the world as it used to, says @johnauthers https://t.co/rUIivsXGV2 via @opinion
— Ole S Hansen (@Ole_S_Hansen) September 25, 2024
Bloomberg’s chief Asia economist Chang Shu noted, “Delivering all these measures at once is highly unusual,” highlighting Beijing’s urgency to mitigate deflationary risks and achieve this year’s 5% national growth target.
For US investors, inflated commodity costs could lead to more volatility in inflation over the next decade. This poses challenges for US businesses, which may face higher input costs and unpredictable consumer demand, complicating planning efforts, especially for smaller firms. While China’s extensive new stimulus measures aim to pull its economy out of a slump, the ripple effects could lead to higher commodity prices and economic volatility worldwide, presenting both opportunities and challenges for US investors and businesses.
