China’s Stimulus Plans: A Precarious Balancing Act Hinging on the US Election
China’s upcoming fiscal stimulus plans, eagerly awaited by investors worldwide, are poised to be significantly impacted by the outcome of the fiercely contested US presidential election. Analysts predict that the scale of Beijing’s economic intervention will directly correlate with whether Donald Trump or Kamala Harris secures the presidency, creating a complex geopolitical equation with potentially far-reaching economic consequences for both nations.
Key Takeaways: China’s Stimulus and the US Election
- The size of China’s stimulus package is **projected to be 10-20% larger under a Trump presidency** compared to a Harris administration, primarily due to the differing trade policies between the two candidates.
- A Trump victory could trigger **increased tariffs on Chinese imports**, forcing China to rely more heavily on domestic demand to stimulate growth.
- While total stimulus amounts are debated (some estimates go as high as **over 10 trillion yuan over several years**), the focus remains on **infrastructure and property**, not direct consumer spending due to issues regarding local government debt.
- The **Chinese yuan is expected to depreciate against the US dollar** more significantly under a President Trump, adding another layer of complexity to China’s economic planning.
- Ultimately, China’s response will likely depend on both the US election outcome and **the subsequent market volatility** in China itself.
The Looming Uncertainty: How the US Election Shapes China’s Response
The standing committee of China’s National People’s Congress is scheduled to conclude its five-day meeting on Friday, a gathering expected to unveil details regarding the highly anticipated fiscal stimulus. The timing is critically significant, falling just days after the US presidential election.
Nomura’s chief China economist, Ting Lu, highlighted this crucial link, asserting that “**The size of China’s fiscal stimulus package would be around 10~20% bigger under a Trump win than under the scenario of a Harris win.**” While emphasizing that China’s internal economic challenges are paramount, he acknowledges the significant influence of the US election.
This disparity stems from the drastically different approaches to trade between the two candidates. Trump has explicitly threatened to **significantly raise tariffs on Chinese imports**, potentially by as much as 60%, with some reports suggesting even a staggering 200% increase under extreme circumstances. This contrasts sharply with the Biden administration’s strategy, which Harris is expected to largely maintain, focusing on restricting **China’s access to advanced technologies** rather than broad-based tariff increases.
The Impact of Increased Tariffs
The potential for increased tariffs poses a serious challenge to China’s economy. Exports have served as a crucial bright spot amidst the ongoing real estate slump and sluggish consumer demand. Zhu Bin, chief economist at Nanhua Futures, emphasized that the implementation of additional trade restrictions would necessitate a greater reliance on domestic demand to fuel economic growth. In his statement translated from Mandarin by CNBC, he emphatically stated, “**Without question we can be certain of one thing — if Trump wins the election, China’s domestic stimulus will only be larger, not smaller.**” He further anticipates that a Trump victory would exert significant downward pressure on the Chinese yuan against the US dollar.
Political Analysts Weigh In: Harris or Trump – Who Does China Prefer?
The question of whether China would prefer a Trump or Harris presidency has become a topic of much debate among political analysts. While some argue that the predictability of a Harris administration might be advantageous for China, others point to the possibility of a more unpredictable, yet potentially less confrontational, relationship under Trump. While both candidates have expressed concerns about China’s economic policies, each has adopted a different approach to this critical relationship.
Liqian Ren, leader of quantitative investment at WisdomTree, offered her perspective: “**I think at this point, probably from China’s view, a potential president Harris [makes it] easier to expect what policies likely come.**” However, she also cautioned against assuming a massive stimulus based solely on the outcome of the election: “**Chinese authorities are ‘constrained by the U.S.-China competition, so the priority number one is to be able to upgrade technology across the board…I think as long as that’s your goal then the government’s willingness to stimulate is still going to be lukewarm.’**”
Market Volatility: A Key Determinant
Ren highlighted that market volatility, particularly within China, rather than the US, could prove more decisive than the specific election winner. “**Market volatility in China, but not the United states, is likely to make ‘China feel more obligated to counter this volatility,’**” she argued, noting that China’s economic confidence is significantly more sensitive to its stock market fluctuations than in the past. This emphasis on domestic market stability adds another layer of complexity to predicting the precise scale of China’s intervention.
The Scale of the Stimulus: A Range of Possibilities
The projected size of the additional debt issuance varies widely across analyst forecasts. Reuters reported that China is considering **more than 10 trillion yuan in debt issuance spread over several years**. However, estimations range significantly, making a precise figure challenging to ascertain.
Differing Perspectives on Stimulus Amount
Zong Liang, chief researcher at Bank of China, is anticipating a considerable increase, suggesting that any announced figure should likely exceed 4 trillion yuan—the sum issued following the 2008 financial crisis. He believes the fiscal deficit could expand beyond the current 3% target, which itself increased to 3.8% last year. However, other perspectives exist. **Liqian Ren**’s calculations based on official statements, media reports, and investment notes concluded that expectations for stimulus were actually quite similar, regardless of the specific timeframes and figures presented. Even with projected differences, this is suggesting stimulus that averages roughly **2 trillion yuan per year.**
The Missing Piece: Consumption and Local Government Debt
While the headline numbers generate considerable discussion, Ren points to a significant and often overlooked factor: the actions of local governments. She notes that the enforcement of tax collection in certain areas has actively discouraged business activity, effectively counteracting some of the central government’s stimulus efforts: “**I think people right now are focusing a lot on the topline number,” Ren said. “But they are missing [how] the local government, they are doing a lot of things that are actually counter[ing] stimulus.”** This points to the need for comprehensive policy adjustments to truly address the issue.
Challenges with Local Government Debt and Consumer Support
The Ministry of Finance’s focus on tackling local government debt problems underscores another significant concern. The stimulus appears more likely to be directed towards shoring up the banking sector rather than providing direct handouts to consumers. While some support for property markets may boost consumer confidence indirectly, Citi analysts believe that **”more decisive consumption support could still be a realistic option under more adverse tariff scenarios.”**
The interplay between the US election, China’s economic vulnerabilities, and local governance challenges makes predicting the exact nature and scale of China’s stimulus plans a daunting but crucially important task, with implications far beyond China’s borders. The outcome of the upcoming US election looks to be pivotal in determining how this crucial scenario plays out.
