Don't Pin Your Hopes on Massive Consumption Stimulus in China

(Bloomberg) -- A leaked early draft of a plan by China's top economic planner for a series of wide-ranging measures to boost consumption of cars and electronics was greeted warmly by the stock market, but investors shouldn't pin their hopes on all the policies described.

The National Development and Reform Commission's proposals, which Bloomberg News reported on last week, include subsidies for new-energy vehicles, smartphones and home appliances, and a significant easing in car ownership restrictions. The agency has since tried to downplay the document, telling state media it'll need "repeated research" before any policies are issued.

“A lot of measures mentioned in the circulated policy draft last week are not implementable and merely serve the purpose for discussion," said Cui Dongshu, secretary general of the China Passenger Car Association. “Who knows what the final policy would be."

It's not unusual for multiple drafts of Chinese government policies to leak while they are being worked on, and for the final version to differ significantly from the original. Moreover, Beijing hinted recently that it won't engage in massive stimulus. Traders interpreted a Friday Politburo statement as a sign extended support isn't on the way, while comments from the State Council and central bank have pointed to less liquidity and more targeted stimulus.

“It's a difficult balancing act for the government,” said Steve Man, a Hong Kong-based analyst with Bloomberg Intelligence. “While the government sees the auto industry is a significant contributor to economic growth, its policies like purchase-tax cuts and subsidies to consumers could lead to pronounced fluctuations in auto demand.”

For those trying to read the tea leaves, it may be wise not to get ahead of themselves. Officials began working on cuts to subsidies for electric vehicles in the summer last year, and only announced the actual policy in March. In the process, there were multiple leaks of various drafts, and the final version still hurt shares of the country's top EV makers when the reductions turned out to be bigger than expected.

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Sharon Chen, James Mayger

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With assistance from Bloomberg