1⃣ Fiscal First, to put some perspective on this, the fiscal element is smaller than the pandemic stimulus and much, much smaller than the '08 stimulus announcement.

Moreover, it appears to be all funded by Beijing. Contrast this with the 2008-09 plan, when majority of fiscal stimulus funds were contributed by local governments (this made sense because it was local-centric property and infrastructure development that drove the recovery)

If we factor incremental credit, the size difference is even larger. As Bert notes here, the credit stimulus in 2008 was estimated at a whopping 31% of GDP. https://x.com/berthofmanecon/s...

In 2020, there was some credit-focused stimulus. But merely three months later, Beijing announced "Three Red Lines" which effectively cut off credit for the property sector which alongside infrastructure was the most capital-intensive part of the economy.

This time, unlikely to be meaningful stimulus from incremental credit at all. Remember, capital formation is what drives credit formation in China 👇. https://x.com/GlennLuk/status/...

And LT policy orientation related to the capital intensity of the economy has shifted. GCF as a % of GDP rose in the 2000s, plateaued over the last decade and is presently transitioning to its decline phase.

Keeping this framework in mind, the aim of loosening credit is not to increase to capital intensity of the economy as it was in 2008-09, but to stabilize i.e. prevent it from declining too quickly. Beijing is very focused on the downward slope of the transition.

2⃣ Monetary Monetary policies aim directly at asset values (a "stock" concept), although the ultimate real economy / GDP impact comes via demand "flows". Translating from "stocks" to "flows" enables us to better align these to fiscal stimulus, which are "flows".

In a recent 🧵, I described a model we could use to quantify the "wealth effect" from the impact of stagnant / declining property and equity markets over the past five years. The key to the model is converting monetary "stock" effects to "flow" impact. https://x.com/GlennLuk/status/...

In a very clear example of this, we can see how cuts to the mortgage rates (monetary stimulus) directly results in ¥150 billion of net income for households, which they can then use to spend or save. https://x.com/GlennLuk/status/...

Further, I have been describing how Beijing's underlying "Common Prosperity" policy framework must ultimately be filtered through a more detailed understanding of the various socioeconomic strata in Chinese society. https://x.com/GlennLuk/status/...

In the same mortgage rate cut example, by recognizing that it is primarily higher-income households that hold these mortgages, we can get a better sense of direct real economy impact on these groups. https://x.com/GlennLuk/status/...

As higher-income groups hold a disproportionate share of wealth / capital assets in China, monetary easing generally benefits these groups disproportionately as well.

The key is ultimately balance. Modern economies are dynamic and interconnected. Even if China is prioritizing lower-income groups via the "Common Prosperity" initiative, higher-income groups still matter, especially the "modern middle class" in the 75th to 95th percentile.

These higher-income groups drive the majority of demand (consumption and gross capital formation) in China. https://x.com/GlennLuk/status/...

While growth was solid in the 1H, economic indicators weakened in the summer, much of it driven by worsening sentiment — especially in higher-income groups. Beijing's worry was on trickle-down effects from higher-income groups to the broader economy.

For example, FAI growth in the larger, higher-income provinces was faltering. It was down ~3% in Guangdong YTD. FAI is important for lower-income migrant workers in the largely blue-collar construction and manufacturing industries.

On the consumer side, declining/stagnant asset prices clearly contribute to such worsening sentiment in those higher-income groups. Less spending by these groups at restaurants and malls means slower "circulation": jobs for service workers etc. https://x.com/GlennLuk/status/...

It was enough of a real economy impact that Beijing finally felt the exercise a "call option" and try to put a "floor" on asset prices, both in its property & stock markets.

This is the opposite of what some have described as an implicit "put option" on the opposite side that puts guardrails on "out of control" asset appreciation.

Combined, we can describe this as Beijing's "Goldilocks Collar". Its policy preference is "not too hot, not too cold". Asset markets are ultimately merely one of many policy tools to develop the real economy.

It remains to be seen how effective these policies will be. Stock markets have rebounded sharply, but zooming out this is after a very long period of underperformance.

Will this lead to higher consumer sentiment and "animal spirits", especially in higher-income groups that still control the majority of household demand? That remains to be seen.

Ultimately, the relatively conservative size and scope of the stimulus programs suggests that Beijing is comfortable with this ~5% real GDP growth level while it continues to execute against the multi-year "Common Prosperity" initiative.

Nice breakdown of some of the specific stimulus programs. Can scroll up from this post for full thread.

Don’t know why but this 🧵 from March didn’t get a lot of distribution. Re-upping. I like to see how my thinking evolves over time. That’s one reason I write. A key area I have evolved my thinking is analysis quantifying the “wealth effects” by socioeconomic strata.

If this collection of letters and punctuation makes sense to you, you might be a dum dum.

No. These are part of longstanding programs to provide minimum standards of quality of life to the most needy: ▪️ Dibao 居民最低生活保障制度 ▪️ Tekun 特困救助 This is not at all a “departure” from what is deemed “welfarism”. https://www.bloomberg.com/news...

The above reflects a fundamental misunderstanding of the the term when used in official context like the below. Read the entire context; key word here is “excessive”. It doesn’t mean no welfare or handouts; it means providing welfare based on what society can afford.

Significantly, earlier in the paragraph, the key is expanding the “cake” over time so that what’s considered “basic living standards” can be raised.

Another take (Economist) on what the “second trillion” will go towards: more of the durable goods trade-in program and what appears to be a new program targeting family support.