There's no fiscal 'bazooka' that China can aim at all of its economic troubles, Citi strategist says

• There isn't a fiscal bazooka that can be aimed at all of China's economic issues, a Citi strategist says.
• The idea that China's government will be able to steer the economy towards prosperity is an assumption that needs to be revised.
• "We know that fiscal is the number one lever, but it's still very troubled waters for the Chinese economy."

China's economic situation is far too anemic for a big fiscal spending package to save the day.

"We haven't had any bazooka reaction by the government," Luis Costa said in a CNBC interview. "This is the crux of the issue here. Over the past 10 years we developed the sense that the Chinese government can steer the economy to prosperity."

He added: "We have to revise that assumption now."

To be sure, China has passed stimulus measures to prop up its sputtering economy, but historically, the policy is not popular among the top brass in Beijing, and President Xi Jinping has not been a big believer of doling out direct cash payments to people.

Either way, the government hasn't been able to fix the economic spiral so far. China is the only major world economy battling deflation, its property sector is still in the doldrums, and the country is hemorrhaging foreign capital. The CSI 300, a benchmark index for the Chinese stock market, has tanked 16% in the past year.

This week, China will hold its annual "Two Sessions" parliamentary meeting where they will release the country's 2024 growth target and outline plans to revive the economy. For investors, the key agenda will be the fiscal policy outlook. 

"[Tuesday's] statements will be a lot more important than today's — a lot of scrutiny in terms of the fiscal targets," Citi's Costa said. "We know that fiscal is the number one lever, but it's still very troubled waters for the Chinese economy."

Last month, Vice Finance Minister Wang Dongwei said public spending remains the main tool through which the government hopes to support its economy.

China's stock market capitalization hit a peak in 2021, Costa noted. It's down 35% since, shedding about $7 trillion in value. In the same timeframe, India's stock market capitalization has risen 60%, and the US stock market value has climbed as much as 22%.

"Something structural happened there, and it's very difficult to fix," Costa said.

Some experts have warned that a massive stimulus package could pave the way for China's "Lehman moment" by worsening some of the underlying issues causing problems for the economy.