The View | China’s coronavirus stimulus is geared towards economic survival, but no more

Name: Chinese Premier Li Keqiang on pandemic, China-US tensions and Hong Kong
Uploaded: 2020-06-02T09:00:08.000Z
Duration: 5 min 11 s
Description: Chinese Premier Li Keqiang on pandemic, China-US tensions and Hong Kong

At the close of the NPC annual meeting, Premier Li Keqiang made it clear that China will defy market hopes for large-scale stimulus in favour of targeted support to help the economy ‘survive’. China is right not to set a growth target to focus on job creation and long-term investment instead

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People ride their bicycles near a large screen showing a press conference by Chinese Premier Li Keqiang following the closing session of the 13th National People’s Congress in Beijing on May 28. Photo: EPA-EFE

Hao Zhou

Published: 5:00pm, 2 Jun 2020Updated: 10:19pm, 2 Jun 2020

The press conference that follows the closing session of the National People’s Congress every year is show time for the Chinese premier. Unlike his predecessor, Wen Jiabao, who had a penchant for classical Chinese poetry, Li Keqiang favours a simple, unadorned style. But I believe that many were impressed by Li’s press conference wrapping up the NPC meeting on May 28, when he took a question about China’s policy orientation.

“We have been saying that we won’t flood the market” with excessive liquidity, he said. “It is still the policy. But extraordinary times call for extraordinary efforts. We are now providing water so that the fish can survive – fish will die without enough water, but there will be bubbles if we provide too much water.”

With these plain and simple words, he clearly outlined the framework that Chinese policymakers had designed for the coming year. By and large China has no intention of unveiling a 4 trillion yuan stimulus package like it did during the global financial crash in 2008: a move that led to a massive asset price bubble, and then a prolonged deleveraging campaign. However, China’s policy needs to be dynamic, and adaptable to the “extraordinary times” of Covid-19.

So what will China do? It is “providing water so that the fish can survive”, or making an extraordinary effort to provide fiscal and monetary support, and buy the economy and markets more time to recover from the impact of the coronavirus. However, the government will also carefully calibrate its response to ensure that liquidity injections do not create a new asset price bubble, which means that the support will be targeted.

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Chinese Premier Li Keqiang on pandemic, China-US tensions and Hong Kong

Overall, China’s policy approach remains restrained, which is reflected in the size of the stimulus package. Although the Chinese authorities haven’t provided a specific number, the market consensus is that the package is around 4 per cent of Chinese gross domestic product. Li noted the view that the stimulus is less aggressive than expected, and stressed that Beijing is in a position to introduce more measures if and when necessary.