Equity rally to boost growth but risks inflating a bubble

Chinese equites surged this week, after state media talked up the value of a stock market rally in countering economic headwinds. Output may benefit in the short-run – at its peak the 2015 rally was adding over 1%-pt to quarterly GDP growth. But the stock market is a blunt policy tool and officials run the risk of inflating a bubble that leaves behind damage when it bursts.

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