China’s equities rose 15.7% last week in response to the introduction of a massive $114 billion stimulus package by the Center. It’s the highest weekly growth Chinese stocks have seen since the boost from the record-breaking stimulus that came after the 2008 global financial crisis. The cash injection has clearly had a positive effect, but how sustainable is this boost?
In 2008, the stimulus came at a time when much of the rest of the global economy was in crisis. It protected the Chinese economy and provided an opportunity to take advantage of global economic difficulties, but also created a huge debt mountain. This time around, what are the outcomes likely to be? Those really hurting from the previously low stock prices are probably, for the most part, players in the system, who would like to see the numbers rise. But how much of a boost to the stock market is actually going to impact the real economy, and to what degree is it just a circular stop-gap?