The latest set of actions implemented by China’s government to stimulate the national economy has left investors expecting more. While these measures were initially received with optimism, leading national stock exchanges to rally by double digits, the lack of new announcements has stifled this momentum, leaving markets filled with expectation.

China’s actions, deemed weak given the size of its vast economic apparatus, are being analyzed by experts trying to explain why authorities have not committed to a larger intervention. Some suggest this is due to a cautious approach aimed at avoiding exacerbating the already high debt levels of the Chinese economy. However, others argue that issuing a large amount of currency might also impact one of the Chinese state’s goals: the internationalization of the yuan.

Even so, the 200 billion yuan destined for infrastructure projects announced by Chairman of the National Development and Reform Commission Zheng Shanjie disappointed many, who expected a ‘big move’ from Chinese authorities.

Chinese experts close to the government estimate the needed stimulus to be close to 10 trillion yuan distributed over a year or two and financed with a new issuance of treasury bonds. Others predict that such incentives would not be broad enough to prop the Chinese economy up, stating that the decline has been “unprecedented.”

Economist Li Xunlei stated:

If every year they issue 5 trillion yuan in treasuries, then they will issue 50 trillion yuan in ultra-long-treasuries over a decade. There won’t be any ramifications, there will only be positives.

Xunlei estimates this would increase the Chinese economy’s leverage levels to 50%, still lower than the U.S. economy’s 120%. Nonetheless, it remains to be seen if the Chinese government will compromise to make such a big move.

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