While China’s recent efforts to boost growth through a series of fiscal policy announcements are likely to support a mild cyclical upturn, it is unclear whether they can reverse long-term structural problems, according to an economist.

In a market note on Wednesday, AMP’s chief economist, Shane Oliver, said China’s economic slowdown began in 2023, driven mostly by its property woes, which exacerbated uncertainty for households and compounded fears about relatively high unemployment.

But these cyclical problems are also exacerbated by structural problems, Oliver said, including excessive savings, export-related investment problems, property-related investment problems, poor demographics, and fiscal imbalances between central and local government.

"As a result, estimates of its potential real GDP growth have fallen from around 10 percent in 2006-10." to about 5 percent now and about 3 percent over the next decade,” Oliver said.

While reversing the demographic decline will be an "uphill battle", Oliver said tackling the other structural and cyclical problems required "aggressive monetary and fiscal stimulus and reforms".

Over the past year, he noted, China had been providing support to avert a major crisis, but last month's set of soft economic data appeared to "prompt" the government to take more concrete action.

Starting in late September, the People's Bank of China announced a long list of monetary easing measures, while the Politburo pledged to increase countercyclical policies, "required" levels of fiscal spending and measures to stem the property slump. While the subsequent move to much greater fiscal stimulus was confirmed last weekend by the Treasury Department, announcements have so far been lacking in detail.

Investors are now waiting for the Standing Committee of the National People's Congress to confirm the amount of fiscal stimulus in late October.

"Most expectations are for about 2 trillion renminbi (A$420 billion) of stimulus, or 1.6 percent of GDP." Based on what we've heard, something along these lines is likely and could drive growth in 2025. to maybe 5.5 percent and at least stabilize property prices,” Oliver said.

But Oliver stressed that whether these measures serve to address China's more structural concerns remains to be seen. He predicted that the "long-term trend towards slower growth" would remain in place.

However, the stimulus-driven cyclical boost is still likely to be positive for Australia, according to the chief economist.

“A buoyant cyclical recovery in Chinese growth may not provide as much of a boost to the Australian economy as it might have in the past. But it will still help support export demand, commodity prices and resource shares,” he said.

"And this is likely to help keep the iron ore price tracking above the federal government's budget assumptions despite the budget increase [via stronger mining profits] it will not be as strong as it was in the last two financial years.'

Global funds are 'reluctantly bullish' on China

As for stocks, Oliver noted that while Chinese stocks are 22% above their mid-September lows, there is room for more upside if significant stimulus is confirmed by the NPC.

This sentiment was reflected in a recent survey by Bank of America (BofA), which revealed that China's growth expectations have started to rise.

Namely, BofA's latest Asia Fund Managers Survey (FMS), which surveyed 231 panelists between October 4 and 10, described global investors as "reluctantly optimistic" about China's latest announcements.

Seen as a fulcrum, these messages prompted participants to abandon their search for opportunities elsewhere and turn back to China.

"China's stimulus announcement prompted investors to raise their outlook for Chinese growth to a net 48 percent, anticipating a stronger economy -- the most optimistic level since April 2023," BofA said.

When asked about the biggest "winner" of the expected stimulus, respondents pointed to emerging market stocks (47 percent) and commodities (41 percent). Expected "losers" included government bonds (41%) and Japanese stocks (33%).