The most talked-about topic in financial markets these days is the dramatic rally in the benchmark S&P 500 equity index, whose 55 per cent rise since March 23 to an all-time high marks the fastest-ever recovery from a bear market, and one that continues to gain momentum despite the devastation wrought by Covid-19. What is less widely appreciated is that Chinese stocks have performed even better since the start of this year. While the S&P 500 is up 7.5 per cent, the CSI 300 index of China’s top blue chips and the MSCI China index – a more accurate gauge of sentiment towards the mainland since most of its component stocks are traded offshore – have risen 15 per cent and nearly 20 per cent respectively. The less publicised outperformance of Chinese shares is part of a wider under-appreciation of the role that the world’s second-largest economy has played in the recovery of global markets since the eruption of the pandemic sent asset prices into a tailspin in late February. The prevailing view is that, unlike during previous global shocks – especially the 2008 financial crash, when Beijing did the heavy lifting to stabilise markets and support the world economy – China is stimulus-shy . A cursory glance at the balance sheets of the world’s leading central banks reveals that, in terms of assets, it is now the main Western monetary guardians, led by the US Federal Reserve, that are dishing out nearly all the stimulus. However, just because China is not bailing out the rest of the world this time round does not mean its policy response is inconsequential – far from it. While the surge in indebtedness over the past decade has made financial stability an economic imperative, Beijing is once again leaning heavily on the credit channel to stimulate the economy. According to JPMorgan, in the first seven months of this year, 22.5 trillion yuan (US$3.2 trillion) was added to China’s so-called total social financing, a broad measure of credit and liquidity in the economy, a record high. What is more, the bulk of the stimulus has targeted housing and infrastructure, “a vital precondition for a cyclical upturn in commodities markets”. China’s industrial-demand-led recovery has fuelled a spectacular rally in base metals prices, which fell steeply in the first three months of this year. The price of copper, widely viewed by investors as a leading indicator of global growth, has shot up to its highest level since June 2018. Who is really bleeding more from the trade war: China or the US? The metals-intensive rebound in Chinese industrial activity has helped stabilise commodity markets, and has contributed to the brisk recovery in global manufacturing output which, according to survey data from IHS Markit, returned to expansion territory last month. Just as importantly, China’s reluctance to use orthodox monetary policy as the main tool to boost liquidity – policymakers have instead relied on traditional banks and the capital markets – has helped relieve pressure on the renminbi. The currency rallied past the symbolically important 7-per-dollar level in early July and continues to appreciate , buoyed by the outperformance of China’s economy and the sharp slide in the greenback. Indeed, what is most remarkable from a market perspective is that the country that gave the world Covid-19, and whose slowing economy was one of the main sources of volatility before the virus struck, is now a stabilising force for asset prices. The last time China’s economy was ranked as the most important “tail risk” in markets in Bank of America’s monthly fund manager survey was in April 2019. Since then, the trade war and the prospect of a second wave of Covid-19 cases – risks that have more to do with US politics and policy – have topped the list of threats. To be sure, there are plenty of reasons for investors to worry about China. The virus-induced credit expansion smacks of the same debt-fuelled investment that policymakers have been trying to wean the country off for the past several years. Will China’s debt-fuelled economic bubble eventually pop? Tensions between Beijing and Washington will persist, irrespective of the outcome of America’s election, with US restrictions on Chinese technology likely to intensify. Moreover, China’s recovery is uneven – retail sales are still contracting – and fragile given the severity of the global downturn. Yet, in the post-Covid-19 world of buoyant markets and depressed economies, China is performing relatively well on both fronts. More importantly, it brought the virus under control early on in the crisis, helping it restore a reputation badly dented by the pathogen. Although more aggressive stimulus may be needed if the recovery does not gain further momentum, Chinese policymakers are getting more bang for their buck this time round. By letting Western economies do the heavy lifting on providing stimulus, China benefits from a world awash with liquidity while posing less risk to financial stability at home. This is one more reason China’s role in the recovery deserves more attention. Nicholas Spiro is a partner at Lauressa Advisory