China's Policy Stimulus Challenges

• China is employing four problematic policies to stimulate its economy: subsidizing manufacturing, stabilizing the housing market, boosting the stock market, and boosting consumption directly.
• Subsidizing manufacturing worsens imbalances by focusing on production instead of boosting consumption relative to production.
• Stabilizing the housing market is challenging due to excess housing and a declining population.
• Boosting the stock market offers limited impact due to a small float, wealthy speculators, and market volatility.
• Direct consumption boosts through consumer coupons and other transfers are minimal due to decentralized spending and local government cash flow constraints.