Weekly Buzz: China’s got a 1 trillion yuan plan

Last week, China’s government announced its plan to issue 1 trillion yuan, or 137 billion US dollars, in government bonds. Following the news, the Hang Seng Index climbed more than 2%, and back above the psychologically key 17,000 level.

But when you take a step back, this economic stimulus plan (find our Jargon Buster below for a breakdown!) might not be as big as it sounds.

What’s the potential impact?

Firstly, the money raised from these government bonds will be focused on rebuilding disaster-hit areas in the country, following historic floods in the summer. Even so, this funding could be crucial in supporting local economic recovery.

On a larger scale, this fresh stimulus spending is small – it doesn’t even match 1% of the overall Chinese economy. But China prefers to make small steps: rather than bringing out the big guns, the country’s stuck to a little-and-often approach to tackle its economic slowdown.

China’s careful approach to budgeting is clear in its books: the country's debt is worth around 80% of its economy. That’s not insignificant – but compared to bigger spenders like Italy’s 140% and US’s 110%, it’s on the low side.

In tandem with these new government bonds, the Chinese president also paid a rare visit to the country’s central bank – the knee-shaking equivalent of your boss scheduling an impromptu one-on-one meeting without warning. That’s a sign that the country’s leader is far from content with the state of the economy, and it may well have spurred on the government’s decision to increase its spending.

With the country picking up more than expected last quarter, this tortoise may be inching ahead in the marathon – even if it fell short on the sprint.

As an investor, what does this mean for me?

All in all, it seems China’s not going to take its weak economic recovery lightly. The country’s government is still taking the slow and steady approach, but if push comes to shove, there’s still plenty of room for it to make big moves in boosting its economy.

Looking through a longer-term lens, we think maintaining a market-weight allocation to China makes sense. This means keeping an exposure that’s roughly in line with the market capitalisation of Chinese equities relative to global equities. Within our ERAA™-managed portfolios, we’ve kept exposure to Chinese equities in the low- to mid-single digits across our General Investing portfolios, via EM and broad-based global equity ETFs.

📰 In Other News: Between Germany and Spain, it’s give and take for Europe right now

Europe’s a diverse place: drive a couple of hours, and sangria and paella turn into champagne and escargot. The same is true on the economists’ tour. Inflation’s finally cooling down in Germany and Spain, but at the cost of a slowdown in Europe’s biggest economy – a real mixed bag of economic news.

A trip to Spain features prices that picked up less than expected in October, with inflation holding steady from September. And to add a little bit of sunshine, Spain's economy expanded 0.3% in the third quarter from the previous.

Then take a train to Germany, and while inflation’s eased to its lowest level in 2 years, the main attraction is the economy’s 0.1% GDP dip in the third quarter of 2023 versus the second. That’s an ominous sign that Europe’s biggest economy is moving towards a recession, which would make it hard for the rest of the region to avoid following suit.

The data at least show that the European Central Bank is starting to win points in its long-fought battle against inflation. And if it stays that way, the bank can slash interest rates to buoy up the region's economy if it does enter a recession.

This article was written in collaboration with Finimize.

🎓Jargon Buster: Economic stimulus

Economic stimulus is like that shot of espresso you take in the morning – but for a country’s economy. It’s a jump-start to get things moving again, especially if an economy’s tending towards the sleepier side. To do this, governments and central banks can inject money, cut taxes, introduce policies, or even combine these into a stimulus package.