Many are waiting for the possibility of a massive stimulus package to trigger a turnaround in China. This may not happen, according to Cambridge University’s Mohamed El-Erian, and investors should «be thankful».
China’s economic slowdown has been cited by many as the key reason for diminished risk appetite. There are a myriad of headline challenges including ongoing property troubles, weak consumption, rising geopolitical tensions and more. As a result, investors have stayed on the sidelines in hopes that Beijing will spark a rebound via stimulus.
But according to Mohamed El-Erian, president of Queens' College, Cambridge University, during UBS’s «Wealth Insights 2024» conference, such wishes may be left unanswered as Chinese policymakers focus more on long-term issues over growth in the near term.
Weakening Growth
Thus far, China’s economic miracle has been primarily driven by investments and globalization. But in recent years, the efficiency of this model has been on the decline and it has caused pockets of bubbles, most notably in the country’s real estate market.
«If you simply crank up this engine that’s becoming less efficient, it will produce less in terms of growth, it will produce low-quality growth and it will have adverse side effects,» explained El-Erian, an asset management veteran and ex-Pimco CEO, at the one-day conference attended by finews.asia. «So I think we are looking at another year where those who are expecting a major stimulus package will be disappointed.»
New Model
Instead, El-Erian said that China is now transitioning to a new economic model that will generate growth with higher quality, less dependence on the outside world and more reliance on domestic consumption.
«When people tell me they are disappointed that the Chinese government hasn’t responded to slower growth by going back to its well-tested tool of massive stimulus, I tell them: don’t be surprised, be thankful,» he added.
