• Markets generally view the post-reopening recovery in 2023 as “weaker than expected,” while the government interprets the economic outcome as achieving its target.
• Secondly, policymakers and investors use different benchmarks when assessing the appropriate magnitude of policy easing.
• The government and market participants also have differing priorities when it comes to policy objectives. Policymakers focus on both macro targets (growth, inflation, unemployment) and structural transformation, such as social and security objectives, meaning the government’s tolerance for issues such as the housing market correction is higher than the market expected.
• Further policy stimulus is also an area of divergence. Some investors and renowned policy advisors have argued that China should shift to a “whatever it takes” strategy. Policymakers think differently, however, and are cautious about the limited room for fiscal and monetary stimulus.
• Finally, investors and policymakers disagree on policy transmission channels. China’s policy response will likely prioritize the supply side, particularly for supporting manufacturing upgrades and green technologies. In contrast, investors have argued that demand-side policy support is more effective when dealing with deflation pressures.
