Chinese stock rally cools after Beijing holds off on fiscal stimulus
Markets jumped on return from weeklong holiday but pared gains on investor disappointment with lack of detail
Chinese shares jumped upon reopening after a weeklong holiday on Tuesday but officials stopped short of unveiling more fiscal stimulus measures, limiting further gains after a blistering market rally.
Investor expectations had built up that President Xi Jinping’s economic planners would on Tuesday detail their plans for greater fiscal spending to complement a monetary stimulus that propelled Chinese equities to their best week since 2008.
Zheng Shanjie, chair of the National Development and Reform Commission, China’s state economic planner, told reporters at a press conference in Beijing that he had “full confidence” the economy would reach its official full-year growth target of about 5 per cent.
However, markets were disappointed by the lack of significant new fiscal spending announcements from the NDRC, analysts said.
The blue-chip CSI 300 index of Shanghai- and Shenzhen-listed stocks opened 10.8 per cent higher on Tuesday before falling back to trade 4 per cent higher in early afternoon trading.
Hong Kong’s Hang Seng index fell as much as 9 per cent after rising 11 per cent over the previous five days.
“This is what happens when you feed the monster,” said Alicia García-Herrero, chief Asia-Pacific economist at Natixis. “Every day you need to increase the amount of food or it turns against you.”
Tuesday’s market moves came after institutions including Goldman Sachs, Citi and HSBC raised their targets for Chinese equity performance. The CSI 300 has risen more than 33 per cent over the past month.
Zheng said Chinese authorities would continue to issue ultra-long-dated sovereign bonds in 2025, an indication of more support for the economy. He also said the government would accelerate bond issuance to support growth, front-loading about Rmb200bn ($28bn) from next year’s budget for spending and investment projects.
He also pledged to prioritise consumption and expand domestic demand, which has lagged expectations, as well as strengthen support for China’s poor and students.
Chi Lo, senior Asia-Pacific strategist at BNP Paribas Asset Management, said the “core” fiscal stimulus measures observers had hoped for “weren’t really there today”.
“There is not enough conviction [in the market] that the Chinese authorities were coming out with forceful fiscal spending, accompanied by monetary easing, to get the system out of the doldrums.”
In response to a question about whether there would be new special local government bond issuance in the final two months of 2024 — an indication of greater fiscal support for ailing local administrations — NDRC deputy head Liu Sushe said policymakers were focused on realising the proceeds of existing special bonds.
Ting Lu, China economist at Nomura, forecast fiscal measures and other supportive policies in the next several months.
“The eventual scale and content of the fiscal package might be quite improvised and uncertain due to the brewing stock bubble and still-controversial debates on what Beijing should focus on,” he said.
China’s prospects of hitting its full-year GDP growth target, which is the lowest in decades, have been called into doubt this year as Xi’s administration struggles to reignite confidence among consumers and businesses in the world’s second-biggest economy.
Earlier on Tuesday, the World Bank said it was maintaining its 4.8 per cent growth projection for China’s economy for 2024. The multilateral lender projects China’s GDP growth to slow next year to 4.3 per cent.
Industrial metal prices, which are affected by expectations for China’s construction sector, dropped on Tuesday. CME copper futures fell about 2 per cent, while Dalian iron ore futures were down 1 per cent.
Aaditya Mattoo, the bank’s chief economist for east Asia and the Pacific, said the stimulus measures of recent weeks were “not a substitute for the deeper structural reforms needed to boost longer-term growth”.
“Given the lead time for fiscal policy implementation, most of the measures [and] bond proceeds will carry over into next year,” he said. “And even then, consumers may be reluctant to splurge because a one-time transfer would not boost longer-term incomes or address concerns about ageing, illness and unemployment.”
Analysts at Morgan Stanley suggested China’s finance ministry might hold a “follow-up press conference” to provide details on new measures.
But they added that there was “limited chance of meaningful demand stimulus” focused on consumers in the near term, adding that “sustainable reflation” still required a fiscal package of about Rmb10tn focused on consumption, debt restructuring and property.
