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If former US president Donald Trump secures a second term, China may face increased challenges in navigating its economic policies. President Xi Jinping, who shifted his economic agenda in late September to target a 5% growth goal, is now preparing for the National People’s Congress (NPC) meeting, where crucial decisions on fiscal stimulus will be made. Investors are keenly watching, hoping for significant announcements to revive market optimism.
Waiting on US Election Results
The NPC’s meeting from Nov 4 to Nov 8 coincides with a crucial moment in US politics, creating additional uncertainty in China’s economic discussions. A Trump win, known for his aggressive trade stance, could intensify disagreements among Chinese officials over fiscal borrowing strategies and resource allocation.
Domestic Focus: Debt Swaps and Municipal Finance
Until now, China’s fiscal measures have centered on domestic priorities. Policymakers have proposed substantial debt swaps to relieve municipal debt, and the state is set to buy unsold housing to stabilize property prices. Banks are being incentivized to lend more to counteract deflationary pressures.
However, a Trump win could shift Xi’s focus, renewing emphasis on bolstering China’s industrial strength. This shift would align with Beijing’s previous strategies, like investing heavily in sectors like tech and manufacturing in response to US trade sanctions on firms like Huawei.
Potential for Expanded Stimulus
Some analysts believe that a second Trump presidency might push Beijing to adopt a larger fiscal package, potentially increasing the stimulus size by 20%. Rumors suggest that the government is considering approving over 10 trillion yuan in additional debt issuance if Trump wins. Although this move could sustain market momentum, it also raises concerns over fiscal discipline and China’s broader policy objectives.
The Cost of Industrial Fortification
If Beijing chooses to concentrate on countering external threats, long-term goals such as stock market stabilization or municipal debt restructuring could take a backseat. Recent silence from state media on concrete stimulus details, coupled with its focus on international engagements like the BRICS Summit, signals that China’s leadership may still be weighing its next steps amid the volatile geopolitical landscape.
In the face of a potential Trump comeback, Xi needs to carefully balance defending against US economic pressures with strengthening China’s domestic market and consumer spending. Without a solid internal foundation, China risks weakening its strategic position in global affairs.
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