China isn't planning a ‘bazooka’ stimulus—at least not this year

According to people involved in policy discussions, that is wishful thinking: A bazooka isn’t coming—at least not this year.

Hopes rose for bolder stimulus action when a key Chinese legislative session was postponed until this week. Some investors and analysts viewed it as a sign that Chinese leader Xi Jinping was waiting for U.S. election results to potentially adjust his stimulus plan—especially if Donald Trump, who has pledged sweeping tariffs on Chinese products, looked set to return to the White House.

The people involved in policy discussions say that scheduling issues involving some participants in the legislative meeting caused the delay.

While the U.S.’s approach to China in the next four years will likely affect the country’s economic trajectory, they say, the key planks of the stimulus package aimed for the remainder of this year have been set, with the plan awaiting only formal approval at the legislative meeting.

However, these people say, Beijing is discussing how the U.S. election’s potential impact will affect market sentiment in China. They say that authorities are planning on signaling after the legislative session that more steps to support growth are in the pipeline and that a package of incremental measures can be expanded depending on an assessment of risks to the Chinese economy.

For instance, these people say, if Trump wins the election and goes ahead with his promised tariff hikes, China could try to boost what Beijing describes as “effective demand" at home by increasing government spending in high-end manufacturing and other projects seen by the Xi leadership as crucial to the country’s competitiveness.

That could further antagonize the West, which has scrambled to counter Beijing’s broad expansion in manufacturing. China’s policy has flooded markets with low-cost electric vehicles and other Chinese products.

Some government advisers privately acknowledge that Beijing could have delivered a more detailed and coordinated message about what it aims to achieve with the new stimulus plan. More clarity could have led to less of a roller-coaster ride for markets, they say.

Since China’s leadership made a sudden pivot in late September toward more broadly supporting the economy, it has left investors guessing at the scale of the coming stimulus.

A series of underwhelming news conferences by various economic agencies didn’t help. One reason for the muddled messaging, the people involved in policy discussions say, is that senior officials are afraid of saying anything that could expose vulnerabilities in Xi’s economic agenda.

The vague details of Beijing’s promised support for municipalities, banks and developers left investors with little to hold on to, making it hard for Xi to resuscitate the country’s long-suffering stock market, one motivation for his economic pivot.

That doesn’t mean that the stimulus measures like interest-rate cuts rolled out since September haven’t had some effect. Notably, the housing market, which has been mired in an unprecedented downturn for more than three years, has improved, with both home sales in major cities and sales revenue by top developers rebounding over the past month. “The question is how sustainable the housing recovery can be," wrote Larry Hu, China economist at Macquarie, in a new research report, citing still-low consumer confidence.

The neck-and-neck race between Vice President Kamala Harris and former President Trump is posing yet another test for Beijing to manage investor expectations.

Beijing is particularly wary of a Trump return, people close to the leadership’s thinking have said. If Harris is elected and her policies mirror Biden’s tough but more targeted and predictable approach on China, that would likely be the lesser of two evils in Chinese leaders’ views.

The declaration of a winner after the Nov. 5 election could take several days if not longer, another potential complication for Beijing as it aims to present more on its stimulus in the days following the conclusion of the legislative meeting on Nov. 8.

The aftermath of the election could also steal the thunder of Beijing’s stimulus announcement so that Xi doesn’t get the stock-market vote of confidence he seeks. For investors, uncertainty around the election outcome is also likely to muddle the picture of the potential effectiveness of the Chinese stimulus.

Many economists have urged China’s leadership to shift its focus away from factories and toward getting more money into the pockets of Chinese consumers. Such a strategic change in economic policy, the people say, isn’t in the cards, at least for the foreseeable future.

Any measures that China takes in reaction to the election outcome are likely to be fairly limited. Ting Lu, chief China economist at Nomura, predicts that Beijing’s overall fiscal support for the economy, measured by government borrowing, will amount to between 2% and 3% of the country’s gross domestic product over the next several years. In the event of a Trump win, it could be closer to 3%, according to Lu, while after a Harris win it might be closer to 2%.

Beijing likes to tout its ability to mind its own business, and an increasingly inward-looking policy has made China more isolated from the U.S.-led West. But the market speculation involving potential U.S. impact on Beijing’s decision-making underscores that the Chinese market is just as much a captive of American swings as the rest of the world.

At the same time, China is also in danger of falling victim to its own warnings about external risks, especially those posed by the U.S.

Bert Hofman, a professor at the National University of Singapore’s East Asian Institute and former World Bank China head, says Beijing sent a positive signal to the market with its recent policy reorientation to support the economy. But he says that Beijing’s longstanding rhetoric about external risks could diminish the impact of domestic policy to boost demand.

“U.S. policies vis-à-vis China play a disproportionate role in the official discourse on the Chinese economy, while the real challenge is domestic demand." Hofman says. “Because China has made the U.S. a disproportionate challenge."

Write to Lingling Wei at Lingling.Wei@wsj.com