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China Flags More Fiscal Stimulus for Economy, Leaves Out Key Details on Size

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China announced plans to “significantly increase” debt to revive its economy, but withheld crucial information regarding the overall size of the stimulus package. This leaves investors uncertain about how long the recent stock market rally will last. At a press conference on Saturday, Finance Minister Lan Foan detailed measures aimed at alleviating local government debt, offering subsidies to low-income citizens, supporting the struggling property market, and replenishing state banks’ capital. However, no specific figures were provided.

Investors have been eagerly awaiting more aggressive action as the world’s second-largest economy faces mounting deflationary pressures, low consumer confidence, and a sharp property market downturn. The absence of a specific monetary figure for the stimulus prolongs market uncertainty. Economists and analysts are especially concerned as economic data in recent months has consistently underperformed, raising fears that China’s 2024 growth target of approximately 5% may be difficult to achieve.

Lack of Details Raises Investor Concerns

While Lan emphasized the government’s resolve to tackle the economy’s challenges, the lack of detailed numbers frustrated investors hoping for a comprehensive stimulus package to sustain the recent market rally. “The big bang fiscal stimulus that investors were hoping for… did not come through,” said Vasu Menon, managing director for investment strategy at OCBC in Singapore. The rally in Chinese stocks, which saw a 25% surge after the September Politburo meeting, has since slowed, and concerns about the absence of policy clarity are growing.

China’s property market remains a key issue, with falling demand and heavy debts hanging over local governments. In September, Reuters reported that China plans to issue special sovereign bonds worth around 2 trillion yuan ($284.43 billion), with half of the funds directed at local governments and the other half toward consumer subsidies and household benefits, such as an allowance of 800 yuan ($114) per child for families with two or more children. Meanwhile, Bloomberg reported China is considering injecting 1 trillion yuan of capital into state banks to stimulate lending, though demand for credit remains weak.

Central Bank Interventions and Structural Issues

The People’s Bank of China has already introduced its most aggressive monetary measures since the COVID-19 pandemic, including rate cuts and a liquidity injection of 1 trillion yuan. These measures have lifted market sentiment somewhat, but analysts argue that China needs more profound reforms to boost consumption and shift away from its reliance on debt-driven infrastructure investment.

Despite years of pledges to increase domestic consumption, household spending remains weak. Currently, consumption accounts for less than 40% of China’s annual GDP, significantly below the global average, while investment remains far higher than global norms. These imbalances highlight the need for structural reforms in policies and institutions if China is to achieve sustainable growth.

Lan’s press conference did little to quell concerns, with analysts warning that without targeted measures to boost demand and investment, China may struggle to ease deflationary pressures. “There is still relatively big room for China to issue debt and increase the fiscal deficit,” Lan said, noting that local governments have 2.3 trillion yuan left to spend in the final quarter of the year. However, deeper reforms are expected to be announced gradually.

Uncertain Path Forward

As markets await more concrete details, global investors are left speculating on China’s next moves. The upcoming meeting of China’s National People’s Congress, which is expected to approve additional debt issuance, may finally provide clarity. Until then, volatility in Chinese markets and global commodity prices is likely to continue, as investors try to gauge the impact of China’s fiscal policies.

China’s State Planner Announces Economic Boost but Holds Back on Major Stimulus

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During a highly anticipated press conference on Tuesday, Zheng Shanjie, chairman of China’s National Development and Reform Commission (NDRC), outlined a series of measures aimed at strengthening the country’s economy. Despite these efforts, there were no announcements of major new stimulus initiatives, dampening investor enthusiasm and causing the rally in Chinese markets to lose momentum.

One key announcement was the acceleration of special purpose bond issuance to local governments, intended to support regional economic growth. Zheng emphasized that the 1 trillion yuan in ultra-long special sovereign bonds had been fully allocated to local projects. He also pledged to continue issuing ultra-long special treasury bonds next year. In addition, the central government will release a 100 billion yuan investment plan for 2024 by the end of this month.

The press briefing came as mainland China’s markets reopened after the weeklong Golden Week holiday. While markets initially surged on the news, the lack of significant new stimulus caused gains to slow. The CSI 300 blue-chip index pared its rise to 5% after an early jump of over 10%, while the Shanghai Composite and SZSE Component indices also trimmed gains to 5% and 8%, respectively.

Limited Stimulus Falls Short of Investor Expectations

Although Zheng expressed confidence that China would meet its annual growth target, his comments on the property market and domestic spending lacked detailed financial commitments, leaving some investors disappointed. Yue Su, an economist at the Economist Intelligence Unit, noted that the absence of specific figures might not be a negative indicator, as China’s pro-growth policy stance remains unchanged. Su maintained her forecast of 4.7% growth for China in 2023, with a slight uptick to 4.8% in 2025.

Shaun Rein, managing director at China Market Research Group, commented that many Western investors might take a cautious approach following the announcement. He added that without concrete fiscal stimulus, the recent rally in Chinese markets could be short-lived.

Economic Struggles Persist

China has been grappling with a sluggish economy following a disappointing recovery from COVID-19 lockdowns. Growth in the world’s second-largest economy has been hindered by weak domestic demand and a prolonged downturn in the property sector.

In the first half of 2023, China’s economy grew by 5%, meeting government targets. However, in the second quarter, growth slowed to 4.7%, marking the slowest pace since the first quarter of 2023. Inflation data has also been lackluster, with consumer prices rising by just 0.6% year-on-year in August, missing expectations. Factory activity contracted for the fifth consecutive month in September, with the official Purchasing Managers’ Index (PMI) recording 49.8, signaling continued contraction in the manufacturing sector.

Zheng acknowledged that China still faces significant challenges in achieving its growth objectives. Earlier in the year, he had emphasized the importance of coordinated macroeconomic policies, including fiscal, monetary, employment, and industrial measures, as the country continues to adjust its economic strategies.

While Beijing has introduced several stimulus measures aimed at halting falling property prices and bolstering economic performance, these actions have yet to fully reverse the slowdown. Investors remain cautious, awaiting further fiscal support from the government to reinvigorate the economy.

 

Hong Kong Stocks Surge Over 5% for Sixth Consecutive Day Amid Stimulus Optimism

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Hong Kong’s Hang Seng index surged more than 5% on Wednesday, reaching a 22-month high as optimism regarding Beijing’s latest stimulus measures continued to drive market momentum. This marks the sixth consecutive day of gains, largely fueled by significant advancements in the property sector.

Returning from a public holiday on Tuesday, traders witnessed property developers like China Vanke, Longfor Group, and Logan Group skyrocketing by over 40%, 32%, and 31%, respectively. This rally came after major cities in mainland China implemented easing measures aimed at boosting homebuyer confidence. Additionally, Chinese tech giants including Meituan, Baidu, and JD.com saw increases of over 10%.

With mainland Chinese markets closed for the Golden Week holiday, traders reflected on a strong Monday where Chinese stocks enjoyed their best performance in 16 years, following the announcement of various stimulus initiatives from Beijing. These measures included interest rate cuts, reduced reserve requirements for banks, and increased liquidity for investors.

However, James Sullivan of JPMorgan expressed caution regarding the sustainability of this market rally, pointing out that current stimulus measures seem to focus more on supply and investment rather than directly boosting consumer demand. “The million-dollar question in China right now is, does [the stimulus] only flow into the supply side of the equation, or does it ultimately flow through into consumer demand?” he remarked.

Mixed Performance Across Asia-Pacific Markets Despite Hong Kong’s rally, the broader Asia-Pacific markets exhibited mixed results on Wednesday. Australia’s S&P/ASX 200 dipped 0.13% to close at 8,198.2, while South Korea’s Kospi fell 1.22% to 2,561.69. Japan’s Nikkei 225 decreased by 2.18% to end at 37,808.76, with the Topix dropping 1.44% to 2,651.96.

The recent political developments in Japan, with Shigeru Ishiba taking over as Prime Minister, may influence the Bank of Japan’s monetary policies. Although Ishiba’s leadership might provide room for further interest rate hikes, newly appointed economy minister Ryosei Akazawa emphasized the need for cautious evaluation before making any adjustments.

South Korea Economic Data and Concerns In South Korea, traders were digesting consumer inflation data that indicated a rise of 1.6% in September, which was lower than economists’ expectations of 1.9%. Additionally, factory activity in South Korea contracted at its fastest pace in 15 months in September, highlighting concerns over slowing overseas demand.

Middle East Tensions Impacting Global Markets In U.S. markets, the Dow Jones Industrial Average fell by more than 173 points, while the S&P 500 and Nasdaq Composite declined by 0.93% and 1.53%, respectively, driven by rising tensions in the Middle East. Iran’s missile strikes on Israel and Israel’s ground operations in Lebanon have escalated conflict in the region.

Israeli Prime Minister Benjamin Netanyahu vowed retaliation, asserting that Iran would pay for its actions. Economist Stephen Roach warned that the ongoing conflict could lead to increased oil prices and inflation, prompting the U.S. Federal Reserve to reconsider its accommodative monetary policy amidst rising unemployment.

Investors are closely watching for the upcoming September jobs report, which will provide further insight into the U.S. labor market amid these turbulent conditions.