CONSUMPTION AND CORRUPTION
This leaves consumption as the key lever for growth, making the success of stimulus measures even more critical. To ignite consumption, the stock market wealth effect is certainly an area the Chinese authorities are considering.
A 2019 National Bureau of Economic Research paper underscores this, finding that for every dollar increase in stock market wealth, consumer spending rises by 2.8 cents in the United States. The study also correlates stock market wealth with increases in local employment and payrolls.
The government has pledged 100 billion yuan in equity market support and floated the idea of a stock market stabilisation fund. By boosting the stock market, the goal is to drive up consumer spending, a crucial component to kickstart domestic growth.
Other measures, such as consumption vouchers, are in the works. But effects are temporary and likely muted, given they tend to be one-off and merely bring forward future spending. Longer term solutions such as hukou reforms will take time to work through the economy.
China has also been stepping up its anti-corruption campaign in the banking and finance industry. Taken together with recent enhancements to the securities market focused on improving transparency and security among other things, these efforts aim to ensure that stimulus measures and wealth from future stock market rally more effectively reach businesses and households.
Liquidity injections and rate cuts must trickle down to have impact on consumption.
