China has pressed the stimulus button, it was always a matter of when not if as XI Jinping’s “COVID Zero” policy has shutdown their economy as well as the people, we can’t the policy working but how they will deal with future inevitable breakouts will be interesting. However for now its all about pumping the world’s second largest economy back to life:
- Into the weekend we heard Beijing was planning to spend over $US5 Trillion to get the wheels of business turning with the funds centred on productivity.
- Overnight we heard that China is now planning over $US21bn in tax relief to further achieve their stimulatory goal.
Clearly Beijing is not one and done, history tells us once they set course it takes an awful lot to stop them reaching their destination which in this case is a return to economic growth, a position which is helped by the country being primed for a productivity led economic revolution while steering investment away from overbuilt industries. There are a number of areas that China will be eyeing up in its next chapter:
- Moving up the value chain especially in R&D intensive sectors.
- Using improved digitalization to enable new business processes.
- Improving both energy and general productivity across various industries.
In other words as Chinas middle class grows so must their economy evolve because the days of extremely cheap labour are vanishing fast. A growing Chinese economy is obviously good for iron ore but the next chapter might lack the same level of demand as the previous decades which were all about infrastructure spending and as we know building huge numbers of new apartment blocks many of which still remain largely vacant.
