Pakistan's economy needs stimulus like that of China

Policymakers, however, lack vision and courage to introduce meaningful reforms

KARACHI:

While boosting confidence of both local and foreign investors in the economy and tackling negative sentiment, China announced an aggressive and belated stimulus package on September 24, which triggered the biggest weekly stock market rally in the past 15 years.

It comes amid rising tensions in the Middle East after pager and walkie-talkie attacks by Israeli agents on Hezbollah members in Lebanon around two weeks ago caused disruption in the global supply chain. Similarly, the Russia-Ukraine war is fanning flames of nuclear escalation in Europe, which along with the US is paying the price of the war.

Western publications never hesitate to depict a gloomy economic outlook of China, but in reality China is a fast-growing economy and ranked the second-largest economy after the US.

The aggressive stimulus package has silenced such publications with both local and foreign investors instilling more confidence in China's economy.

Now, domestic investors particularly feel more satisfied with trust in their government. Major indices have soared more than 25% while the Shanghai Stock Exchange suffered glitches due to high volumes.

According to the Economist, the package, unveiled by top regulators, includes a policy rate cut, mortgage rate cuts and 800 billion yuan ($114 billion) in support for the stock market.

Two days later, a meeting of the Politburo, a group of China's 24 most senior leaders, drove the point home by using phrases such as "action comes first", rather than a passive verbiage repeated in recent years. At another high-level meeting on September 29, Chinese premier Li Qiang pledged to speed up the implementation of announced measures.

Debate over the effectiveness and scale of this long-awaited bailout has raged. But local and foreign investors agree on one point, Chinese President Xi Jinping has sprung into action to address the problems afflicting the economy and changed the approach to fix them.

Social media has been flooded with stock-picking tips, even though most stocks listed in China and Hong Kong have surged and all investors have turned down gloomy economic news such as the data released on September 27 that showed industrial profits tumbled almost 17% year-on-year in August.

The shift has given foreign investors a whiplash. Just four days before the unveiling of stimulus, the People's Bank of China (PBOC), the central bank, declined to cut rates, causing many investors to sell more of their Chinese holdings.

A key question for the coming months is whether financial wonks have been given a greater role in new policymaking and whether that matters.

Until September, many Chinese experienced a negative wealth effect as the value of their homes and other investments slid. Now that has starting to reverse, at least for stock investors. A fundamental shift in China's political economy is needed to solve its big problems.

CGTN and Xinhua have reported recently that foreign investors have shown confidence in Chinese markets, with JPMorgan Chase increasing holdings in the local equity market despite global uncertainty.

Foreign investor holdings of Chinese bonds in the inter-bank market increased to 4.5 trillion yuan ($641.9 billion) at the end of July, reaching a record high, according to PBOC data.

Karachi Chamber of Commerce and Industry's former president Majyd Aziz said, "The stimulus package announced by Beijing brought about a positive, cheerful, and historic response from stock exchanges in China."

He added that Pakistan's private sector had long been lobbying and advocating that fundamental reforms were crucial if the nation had to come out of the economic morass and ad hoc decisions must be put to rest that had been a major blockade over decades in the way of economic salvation.

Although it can be argued that China has the financial wherewithal to undertake such stimulating initiatives, Pakistani policymakers lack the vision and courage to introduce meaningful reforms.

These are the prime reasons why exports move at a snail's pace, imports are encouraged and the nation has to knock at the portals of IMF to bail the country out of the economic quagmire. This is the story of the last many decades and despite all the spin-doctoring by economists, analysts and researchers, a mega policy shift has never been highlighted.

One indicator is that if a sincere stimulus package, applicable for at least three years, is announced after deep consultation with the private sector, the Pakistan Stock Exchange will immediately shoot up to 100,000 points before November instead of the much-touted time frame of last week of December. Pakistani policymakers have done enough experiments over decades but results have never been impressive. Why not learn what the world is doing and adapt the best practices for the country?

The writer is a staff correspondent