China's reluctance to empower corporations could undermine economic stimulus: report

China's latest economic stimulus is generating major repercussions in global markets. Following a series of bold moves by the People's Bank of China (PBoC), including lowering the reserve requirement ratio (RRR) for banks and lowering key repo rates, the financial system is primed for an influx of liquidity.

The goal is to inject $140 billion into the economy and improve lending to stimulate growth. Additionally, Reuters reports that China plans to issue 2 trillion yuan (about $284 billion) in special sovereign bonds this year to boost consumer spending.

However, Nick Colasco-founder of DataTrek Researchwarned of the challenges posed by the Chinese government's approach. During a Bloomberg surveillance podcastnoted that although there are various monetary and fiscal policy measures, there is a contradictory perspective among government regulators.

They want to improve the economy, but are reluctant to give too much power back to the rich and corporations.

“And that tension has been really detrimental to investor sentiment in the Chinese stock market,” Colas said on the podcast.

Colas emphasized that this tension has negatively impacted investor sentiment in the Chinese stock market.

Also Read: China Stimulus Sparks Optimism: 3 Large-Cap Stocks With Analyst Buy Ratings

Colas also made a comparison between China and the United States in terms of their resilience. He expressed that the United States, by its very nature, is psychologically “antifragile.”

“Americans are very optimistic people. They don't worry about making mistakes. And they don't criticize people who fail, at least in business,” Colas said on the Bloomberg Surveillance Podcast.

He commented that American society allows for “second and third acts,” highlighting a cultural tendency to bounce back from setbacks.

When asked about China's antifragility, Colas acknowledged that it exists, but not to the same degree as in the United States. He noted that Americans' unique ability to recover from mistakes, whether in business or politics, sets the United States apart globally. This resilience, he concluded, is a hallmark of American exceptionalism.

A recent Bloomberg report highlighted that a growing group of prominent Chinese economists, including the former central bank chief Yi Ganghas warned of the need to boost demand to prevent China from falling into a deflationary spiral.

Companies engaged in intense price wars are laying off workers and college graduates face challenges finding employment, leading to a record youth unemployment rate last month, the report said.

While the new multifaceted policy package has revitalized stock markets, it did little to address the fundamental issues affecting China's long-term economic prospects.

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