The following is an excerpt from Lizzi C. Lee's op-ed in The Wire China. Lizzi is a Fellow on Chinese Economy at the Asia Society Policy Institute's Center for China Analysis.

China’s recent economic pivot has electrified financial markets and captured the attention of investors across the globe. In late September 2024, Beijing unleashed a potent blend of fiscal and monetary measures, spearheaded by the People’s Bank of China (PBOC), in a surprise move that caught even seasoned insiders off guard. The result? An extraordinary market surge, with the Shanghai Composite and CSI 300 indices skyrocketing over 25%, while sentiment reversed sharply from pessimism to exuberance.

To understand the depth of this shift, context is crucial. China’s economy was buckling under the weight of deflation, dwindling consumer demand, and a property sector in tatters. Policymakers had tried multiple stimulus measures over the past year, but these fragmented efforts fell flat. Market participants had grown disillusioned with the PBOC’s cautious, piecemeal approach, where rate cuts and liquidity injections seemed more like drops in a bucket.

Local bureaucracies, paralyzed by fear from ongoing anti-corruption campaigns, compounded the problem. Officials opted to sit on their hands, more terrified of making mistakes than taking action. Burdened by local debt, resources were drained, leaving central government policies to stagnate at the grassroots level. This inertia gave rise to what many described as “passive resistance,” where policy changes were either reluctantly implemented or ignored altogether. China’s economy seemed stuck in neutral — something had to give, and fast.

Read the full op-ed in The Wire China.