Asia wrap: Stuck in the murk

Chinese stocks dipped after early fluctuations, reflecting growing disappointment over the sluggish pace of stimulus rollouts. But China bears have been hesitant to sell aggressively, knowing that state-backed institutions could swoop in to buy the dip at any moment, triggering a retail frenzy as soon as the headline spreads.

The market’s been spinning like a top since late September when a series of central bank stimulus measures sparked a surge of optimism that's now fizzling out. With Beijing dragging its feet detailing a comprehensive fiscal spending plan, skepticism is mounting about whether the authorities are willing—or able—to deploy the necessary firepower to revitalize the economy and markets. Even though Beijing made a coordinated effort to boost confidence, doubts linger from Wall Street to Shanghai on whether the current array of measures will be enough to reignite growth.

By now, Xi’s inner circle has undoubtedly heard the same refrain from government economists and market veterans alike: China must pivot to the consumer in a major, structural way. Yet, the latest Ministry of Finance briefing remains focused on debt—debt relief, debt management, and more debt. The missing piece? Any meaningful focus on boosting consumer spending.

At least policymakers now acknowledge the problem, but they seem stuck on how to implement the necessary structural reforms. It's perhaps understandable, given the enormity and complexity of what’s required. Structural shifts like these could take decades, even if Beijing went full throttle. But what’s their excuse for holding back on immediate stimulus?

Is Beijing’s real issue that the country’s debt burden is so massive that they prioritize debt relief over everything else? If the central government is already using its funds to plug these debt holes, it might feel fiscally constrained when launching large-scale stimulus or structural reforms. That’s a profoundly discouraging possibility—and it could explain the current hesitation, hence investors are stuck in the murk.