On October 8, 2024, China announced a new economic stimulus package that has led to a remarkable 15% increase in the stock market, signaling a potential shift in the government's approach to economic recovery. This package is reminiscent of the $568 billion stimulus implemented in late 2008, which helped China avoid a severe recession during the global financial crisis.
According to Shang-Jin Wei, a professor at Columbia Business School, the previous stimulus successfully boosted China's GDP growth to 10% by 2010, thereby enhancing global demand. The current package's success will depend on various factors, including its size, scope, and effectiveness in stimulating domestic growth while strengthening economic ties with other nations.
Market reactions suggest increased confidence in the government's willingness to implement bold measures to foster economic growth. However, the real test will be whether this confidence translates into consumer spending, private and state investment, and a resurgence of foreign direct investment in the coming months and years.
Wei emphasizes that while the new package is a crucial step towards reviving growth, China must also pursue further structural reforms to sustain long-term economic stability. Key reforms should focus on improving the business environment for all companies, particularly non-state and foreign enterprises, to encourage investment and consumer spending.