Economist Eswar Prasad suggests that while China is taking measures to bolster its economy and stock markets, there are limitations to the potential outcomes.
In an interview with Nikkei, Prasad, a professor at Cornell University and former IMF official overseeing China, emphasized the constraints faced by firms and households amidst persisting bearish sentiments. Despite more than a dozen interventions by Beijing since January aimed at stabilizing stock markets and supporting subdued property market demand, losses in Chinese and Hong Kong markets have continued since 2021.
While recent optimism surrounding Beijing’s support measures led to gains in benchmark stock indices on Wednesday, they remain lower year-to-date. Prasad, echoing sentiments from Rhodium Group researchers, highlighted the absence of a comprehensive reform framework to restore private-sector confidence and boost economic growth.
China’s struggles to sustain growth beyond COVID-19 lockdowns, coupled with challenges such as a property crisis, deflationary pressure, and demographic shifts, have dampened investor confidence. Prasad anticipates difficulty in maintaining growth rates of 4% to 5% in the coming years due to these vulnerabilities.
While China has not disclosed its growth target for the current year, insiders expect Beijing to maintain a 5% target. Despite recording a 5.2% GDP growth in 2023, an improvement over the pandemic-affected 3% in 2022, it marked one of the weakest performances in three decades.
Prasad acknowledges a diminishing likelihood of China’s GDP surpassing that of the US, but he suggests that a second Trump presidency could inadvertently benefit China. Trump’s potential return to power might exacerbate trade protectionism, leading to trade and financial fragmentation. Trump’s recent remarks about imposing tariffs exceeding 60% on Chinese goods if re-elected underscore this stance.
Prasad predicts that Trump’s likely isolationist policies would diminish the US’s leadership role in international organizations and global issues like climate change, creating an opportunity for China to enhance its economic and geopolitical influence, particularly in Asia.