CHINA RIDES A "STIMULUS" ROLLERCOASTER / THE WALL STREET JOURNAL EDITORIAL

China Rides a ‘Stimulus’ Rollercoaster

Chinese stocks fall after their recent ascent as Beijing’s revival policies underwhelm.

By The Editorial Board

Photo: Cfoto/Zuma Press

What goes up, up, up must come down, down, down—especially in China these days. 

So it is that Chinese equities tumbled this week after their remarkable recent ascent, as Beijing faces ever noisier demands to “do something” to rescue the economy.

The benchmark CSI 300 index for shares listed in Shanghai and Shenzhen slid 7.1% Wednesday, its worst day since the early phase of the Covid pandemic in 2020. 

Hong Kong’s Hang Seng Index (composed of many Chinese companies) on Tuesday fell 7.1%, its worst day since October 2008. 

Both remain well above their levels of a month ago, but investors are rethinking their ebullience.

This is more a political embarrassment for Beijing than it is a threat to the economy or financial system. 

China’s equity markets are small relative to China’s size, and most retail investors are short-term speculators rather than long-term saver-investors.

But the political embarrassment is acute for the Communist Party, as most of the stock speculation lately has centered on Beijing’s policy plans. 

China is four years into a historic and perilous deleveraging of its real-estate-driven economic model. 

Beijing lately has encouraged new hopes about whether or when officials might deploy subsidies to put a floor under the property market, or come up with some other way to spur faster economic growth.

The stock froth now dissipating was stirred up last month when Beijing introduced a raft of credit subsidies for the property market, including lower mortgage rates and support for local governments to buy unsold housing units for conversion to social housing. 

That announcement included some juice for the stock market, in the form of liquidity support for asset managers buying stocks and credit subsidies for companies buying back their own shares.

Those policies soon led to demands for more. 

The usual suspects want Beijing to roll out a Keynesian fiscal stimulus, in which the government would borrow (anywhere from 1 to 10 trillion yuan, because why think small?) and use the cash for transfer payments to goose consumer demand. 

Stockholders, including retail investors who piled into the market last week amid Keynes fever, were disappointed when a government press conference Tuesday didn’t unveil a spend-a-thon.

There’s no reason to think a blowout will work, although it would boost official GDP data when the government spends the money. 

Keynesian sprees never deliver on their backers’ promises of spending multipliers, virtuous cycles and the like even under the best of circumstances. 

The stimulus might still come anyway, as President Xi Jinping looks for a way out of China’s debt-deflation trap.

But what China really needs is a new burst of productive private entrepreneurship and investment. 

That isn’t likely after Mr. Xi spent more than a decade tightening the Party-state’s grip on the economy. 

Meanwhile, investors beware.