Rumored Stimulus for China Boosts Asian Markets

Rumors about another massive ‘stimulus’ from China has reportedly bolstered the Asian markets.

Reports the Marketwatch.com,

China is set to ramp up stimulus spending to help stabilize the economy, with a program of interest-rate cuts and infrastructure-related spending being planned, according to analysts, who caution the program won’t be big enough to bring about a rapid turnaround in the slowing mainland economy.

In a research note Monday, Credit Suisse said the new policy emerged from a meeting by the State Council, or China’s cabinet, last week when Premier Wen Jiabao urged “greater emphasis on growth.”

“We believe that government has started a new round of fiscal stimulus,” Credit Suisse analyst Dong Tao wrote in a note to investors.

Last week, the central government unveiled a 2 trillion yuan ($316 billion) credit line to the Ministry of Railways, 170 billion yuan in subsidies to environmental projects and about 78 billion yuan in support to social-housing projects, according to Credit Suisse.

Local governments were also encouraged to submit infrastructure project proposals for approval before the end of June, with the government promising to speed up funding support, according to Credit Suisse.

“All of these moves seem to suggest that the Chinese government has become more active in dealing with growth downturn,” Tao said.

Rumors are one thing. Real actions are more important.

Considering that the euro and China’s markets have been oversold, rumors may indeed provide rationalization to an oversold bounce.

Let me repeat what I wrote last Sunday on China,

Again, developments in China will MAINLY be hinged on the response by political authorities on the unfolding economic events.

I’d prefer to see the Chinese government make good on such a rumor before making my move.

The risk is that official actions may be less than the expected stimulus which may incite another intense downdraft.

A report suggested that political consensus over more stimulus remains uncertain. According to an Op Ed at the Sydney Morning Herald

Commentary in China, though, is far from unanimous that Beijing's leadership is ready - and able - to kick the economy up a gear.

A senior Chinese economic official, indeed, has said that the country is unlikely to start another round of massive stimulus package to spur growth.

And like Pavlov’s Dogs, this should be added proof of the intense addiction to steroids by global financial markets which means sharply volatile days ahead, again in both directions.

And this also represents further evidence that China's economy, mainly dependent on Keynesian policies, has been a ballooning bubble.

Be careful out there.