Letters | China’s stimulus measures show lessons learned from the past

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The stock markets in mainland China and Hong Kong have outperformed others after the announcement of stimulus measures by central government authorities last month. The measures include setting up a relending facility to support listed companies’ stock buy-backs and purchases; slashing the down payment ratio for second-hand properties to 15 per cent and cutting the mortgage rate by around half a percentage point.

Most importantly, at a Politburo meeting two days after the announcement, the leadership stressed stabilising the housing market, controlling property supply and revitalising the capital market.

China’s growth relies on three drivers: investment, consumption and exports. Despite thriving exports, consumption and investment have underperformed. Amid a lack of rapid, job-creating economic growth and falling property prices which devalue people’s assets, there is little appetite for consumption. Moreover, due to the risk of deeper deflationary risk, investors have slowed down their fixed asset investment.

Some have compared these measures to the quantitative easing in the US in the wake of the 2008 global financial crisis or the easing in Japan to counter deflationary pressures. Others have compared them to China’s stock market bailout in 2015. Yet these different attempts at monetary easing are not comparable because the approaches and outcome are totally different.