Comment: The clock is ticking for China’s economic stimulus measures to taper

CONSUMPTION AND CORRUPTION

This leaves consumption as the key lever for growth, making the success of stimulus measures even more critical. To ignite consumption, the stock market wealth effect is certainly an area that the Chinese authorities are considering.

A 2019 National Bureau of Economic Research paper underscores this, finding that for every dollar increase in stock market wealth, consumer spending increases by 2.8 cents in the United States. The study also correlates stock market wealth with increased local employment and payrolls.

The government has pledged 100 billion yuan in support of the stock market and has floated the idea of ​​a stock market stabilization fund. With the stock market boost, the goal is to boost consumer spending, a crucial component in boosting domestic growth.

Other measures, such as consumption vouchers, are underway. But the effects are temporary and probably muted, as they tend to be one-off and only advance future spending. Long-term solutions such as hukou reforms will take time to work their way through the economy.

China has also stepped up its anti-corruption campaign in the banking and financial sector. Along with recent stock market improvements focused on improving transparency and security, among other things, these efforts aim to ensure that stimulus measures and the wealth of the future stock market recovery reach more effectively companies and households.

Liquidity injections and rate cuts must trickle down to have an impact on consumption.