Commentary: A stimulus is good, but China still faces a hard slog

SINGAPORE: In little more than a week, China’s efforts to crank up its economy have achieved something important: President Xi Jinping changed the conversation about global prospects. The Federal Reserve, usually the principal force driving market sentiment and forecasting, has company. 
That’s a big shift. For Beijing’s stardom to last, it needs to not only deliver what’s been flagged: Forceful monetary easing, fiscal expansion, new measures to help home buyers, capital injections into lenders, and the creation of a market stabilisation fund. Officials also now need to offer some meaty goals that justify the euphoria.
What does a win look like, and would such a victory be temporary or have staying power?
There’s certainly plenty of excitement. Not only did Chinese stocks surge, but everything linked to the country, from iron ore to the Philippine peso, was propelled higher.
An “anything but China” mantra has been supplanted by “all-in, buy China”, Louis-Vincent Gave of Gavekal Research wrote in a note on Tuesday (Oct 1). Beijing appears to have shocked traders into action.  
The pivot has been likened to “whatever it takes”, the phrase immortalised by former European Central Bank (ECB) president Mario Draghi in 2012. He assured an audience that the euro zone, rocked by a series of debt fiascos, would survive. (Few people cite the words that followed: “Believe me, it will be enough.”) 
Draghi’s task was clear – and quantifiable. The euro is still very much alive; more nations use it than ever. Draghi’s challenge had the benefit of being lofty. The euro symbolised a half-century of ever-deeper integration.   
Does China have such a defined and noble objective?
When the first steps were rolled out on Sep 24, they were interpreted as an attempt to secure Xi’s growth target of around 5 per cent. That clip was in some jeopardy, but a dramatic undershoot was unlikely.
These stakes seem small compared with the task that confronted Draghi, or for that matter, US policymakers in late 2008 in the depths of the global financial tumult. They were challenges born of emergency. China’s performance has been underwhelming, but it’s a stretch to call it a crisis.
Juicing the economy in a meaningful way can have many worthy outcomes. The Chinese Politburo wrapped up last week by pledging action to make the real estate market “stop declining”. 
Did the highest decision-making body mean for a month, for a year, or forever? And how will that be measured? We may have to settle for recognising success if, and when, we see it.
The spectre of deflation has followed China for a while, so lifting overall demand can’t hurt on that score. But without an inflation target, it’s hard to exactly know the destination. 
Beijing hasn’t declared a 2 per cent goal like the US Fed or ECB, but a former governor of the People’s Bank of China (PBOC) has spoken of the desirability of such a pace.
Also important to remember is that targets can be changed. Boosting gross domestic product by around 5 per cent in 2024 doesn’t guarantee future success.
When that number was unveiled earlier this year, it was described as ambitious. When a similar task was set 12 months earlier, it was criticised as too conservative. The reality is that China was in a long-term slowdown well before the pandemic, a trend that will continue.
The bigger an economy gets, the harder it is to keep growing at anything like the pace China did in the 1990s and during the first decades of this century. Part of the excitement the past few days is for a China that is somehow back. But that type of turbo-charged expansion won’t return. 
PBOC chief Pan Gongsheng hasn’t assured, as Draghi did, that his steps will be enough. That’s wise.
The euro region still had some difficult times ahead of it in 2012. We now know that China cares enough about what ails its economy to mount a policy offensive. There’s still a lot of work to be done – and some concepts to be solidified.
As positive as the new initiatives are, China faces a slog.