context: China is in search of a new growth model as old policy tools become ineffective in the 'new era'. While 5G empowered high-tech and advanced manufacturing sounds like an attractive solution, it is unclear how much already high debt levels will be pushed up, and whether investment in these areas will be efficient and effective.
Tao Dong 陶东 Credit Suisse AG general manager and China Chief Economist Forum executive board member discussed what the next stimulus will look like
- on the nation's 70th anniversary, stabilising the economy is not only an economic matter, but a political one; further stimulus can still be expected
- while delayed US monetary tightening provides more policy space for China, the major objective will still be liquidity management because monetary easing not only fails to reach the economy but creates more distortions; on the fiscal side, it does not matter how much money the government spends, but how it allocates public investment
- stimulus will emphasise boosting household consumption; some attribute the recent consumption slowdown to high financial burdens from mortgages, but Tao thinks a more significant factor is changing expectations that housing price will continue growing, making households anticipate diminishing wealth
- automobile and real estate markets may be new focuses for incentivising household consumption
- plates, traffic control, and auto loan policies are relaxing in some cities, and new energy vehicles are subject to preferential taxes
- the state is ambivalent on real estate policies: while real estate control is still important, relaxation is likely if US-China trade talks do not make significant progress and economic uncertainties still abound
- long-term solution lies in commercialisation of 5G, big data, AI, cloud, and block chain
- there are lot of things the government can do to facilitate corporate-driven innovation and refrain from over-regulation
- issuing 5G permits is the first step on the right track, and this type of stimulus does not cost much