Will China's Epic Spend Be Enough?

That same day, seven government departments released a joint policy package to stabilize China's 500 billion yuan dairy industry, which has been severely impacted by declining milk and beef prices since 2023.

Initially, the market's response was overwhelmingly positive. Perhaps too positive. In the last week of September, stock markets in Shanghai, Shenzhen and Hong Kong saw their biggest weekly rise in 16 years .

On October 8, following China's National Day holiday, turnover on the Shanghai and Shenzhen stock exchanges hit an unprecedented 3.43 trillion yuan . However, expectations for further stimulus measures were met with disappointment.

China's National Development and Reform Commission brought forward 100 billion yuan in spending from the 2025 budget. That wasn't enough to sustain market optimism. On October 9, Chinese stocks saw their most severe drop in 27 years.

This downturn only worsened a few days later, when China's Ministry of Finance hinted there was“ample room” to raise debts but did not specify any new stimulus measures.

The market remains deeply uncertain about the future direction of China's economic policies and what they might mean for the world. Hopes that more details might be released over the weekend were largely dashed .

Back in July, Chinese authorities asserted in their Third Plenary Session communique that China“must remain firmly committed” to achieving this year's economic growth target of 5%. Compared to the country's reform-era economic performance , that's a modest goal.

But facing a persistently sluggish economic outlook, Xi later seemed to subtly shift the tone, changing the language from“remain firmly committed” to“strive to fulfill” in September.

Over the past decades, China has frequently employed massive-scale stimulus measures to revive its economy during downturns. These policies have been able to significantly rejuvenate the economy, though occasionally with some worrying side effects.

In response to the 2008 global financial crisis, China's State Council released a 4 trillion yuan stimulus package. This successfully helped China stand firm through the crisis and was credited as a key stabilizer of the global economy.

But it also accumulated trillions of yuan in debt through local government financing and accelerated the rise of“shadow banking” – unregulated financial activities. China also spent big on stimulating its economy in 2015, following stock market turbulence, and then again in the wake of the pandemic.

What should we expect this time? How balanced or sustainable will any ensuing growth be?We are still waiting on many of the details about the size and scope of the package, but any big increase in Chinese economic demand will likely have“spillover” effects.

As we've discussed, many of the measures announced to date will have their most immediate effect on borrowing, lending and liquidity in China's stock markets.

That suggests we should watch for what's called the“wealth effect” in economics. This is the theory that rising asset prices – such as for housing or shares – make people feel wealthier and, therefore, spend more.

If China's big stimulus spend causes sustained increases in asset values, it could give rise to economic optimism. Chinese consumers – and investors – may become less anxious about the future.

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From Australia's point of view, that could see increases in demand in areas where our economies are interlinked – iron ore, tourism, education and manufactured food exports. More broadly, Chinese demand could contribute to growth in other global economies, with a self-reinforcing effect on the world as a whole.

Beware financialization

On the other hand, China's shift to depend more on volatile asset price rises in its capital markets to sustain growth could have destabilizing effects. Where asset price increases benefit those at the“top end of town,” they can breed inequities and imbalances of their own.

China's“Black Monday” stock market crash in 2015 raised alarms in Beijing. Partly reflecting a wariness of excess financialization, Xi cautioned at the time that“housing is for living in, not for speculation.”

So far, China is still navigating its path toward a more sustainable development model, striving to strike a balance between sustaining economic growth and stabilizing its domestic markets and political landscape. The outcome remains profoundly uncertain for us all-perhaps even China itself.

Wenting He is a PhD candidate of international relations, Australian National University and Wesley Widmaier is professor of international relations, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article .

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