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SHANGHAI — The sweeping stimulus measures announced in Beijing last week appear to have lifted the tired spirits of entrepreneurs like Yu Gong, founder and CEO of video streaming platform iQiyi.
“Some say the next 10 years of a great bull market has begun,” he noted as he began a presentation in Shanghai on Sept. 25, a day after some foreign observers of Chinese stocks began a frenzied rally that sent the market reeling. at the beginning of the year, it named one of the hottest 2024 “non-investable”.
Beijing's latest attempt to boost sentiment has been more successful than many of its previous attempts in the past year and a half since the country's post-COVID rebound began to erupt. However, many analysts are still uncertain about the full scope of the government's planned stimulus, and are wary of ending China's economic woes, with some saying it will still be inadequate to halt the country's deflationary funk or even meet the official 2024 deadline. . the growth target of “about 5%” has been achieved.
“The shift in Beijing's approach to deflation is a good start, although more aggressive central government stimulus is needed,” Robin Xing, chief China economist at Morgan Stanley, said in a client note this week. “We believe that policy easing for the remainder of this year may moderate further fiscal tightening, but is probably not enough to ensure a return to strong growth.”
Last week's moves, clearly timed to lift markets ahead of the 75th anniversary of the founding of the People's Republic of China on Oct. 1, were bigger than most analysts expected.
From left, People's Bank of China Governor Pan Gongsheng, National Financial Regulatory Administration Minister Li Yunze and China Securities Regulatory Commission Chairman Wu Qing speak to reporters in Beijing on September 24. © Reuters
Particularly unexpected was the People's Bank of China's Sept. 24 allocation of 500 billion yuan ($71.2 billion) to indirectly fund stock purchases by institutional investors and 300 billion yuan to support companies' share buyback programs to directly boost stock prices.
Chairman of the Politburo of the Communist Party of China, Xi Jinping, then held an unexpected meeting devoted to the economy. It concluded on September 26 with calls for “significant interest rate cuts”, “counter-cyclical adjustment of fiscal and monetary policy” and an end to the “real estate market slump”.
The exchange received the message immediately. The CSI 300 Index, which tracks the top stocks listed on the Shanghai and Shenzhen exchanges, ended Monday's trade ahead of the extended National Day holiday, up 25.1% from a week earlier to 4,017,855. Trading has since been suspended, but some brokers have remained open around the clock to respond to the surge in requests to open trading accounts.
The rally means the CSI 300 is up 17.1% so far in 2024 over 12.% For the Dow Jones Industrial Average and 15.1% for the Nikkei 225 on Thursday.
There are some signs that Beijing's messaging is also affecting China's moribund property market. According to Citigroup analyst Griffin Chan, more homes were sold in Hangzhou on September 26 and 27 than in the entire previous week; at the same time, the developers of two luxury projects in Shanghai successfully sold all their units.
The next test of consumer confidence will come after the holiday period ends on Monday, as retail spending and home sales are calculated for the period.
According to CCTV, movie ticket sales on the first day of the holiday totaled 494 million yuan, up 14.9% from a year ago. To keep the momentum going, the Chinese public and observers alike will be looking for Beijing to follow through on its economic stimulus pledges last week, unveiling plans to support consumers and rescue the property market.
A train station in Nanjing on September 30: China's Golden Week celebrations are testing renewed consumer confidence. (VCG via AP)
Morgan Stanley's Xing thinks the National People's Congress Standing Committee could approve an additional government budget of between 1 trillion yuan and 2 trillion yuan later this month. Xiangrong Yu, a fellow at Citigroup, forecasts a 3 trillion yuan package of consumer support, likely to include additional subsidies for buyers trading in new cars and home appliances, spending vouchers for special goods and services, and enhanced benefits for the unemployed and other disadvantaged people. groups, tax cuts and higher birth subsidies.
“We need to take meaningful fiscal follow-up measures by the end of October,” Yu wrote on Monday. Otherwise, the investor's patience will run out.”
Expectations are also growing that Beijing will inject capital into the country's major banks, as Li Yunzhen, head of the National Administration of Financial Regulation, said at the same press conference where the PBOC announced its interventions.
Such a move could boost confidence in the country's banks, whose net interest margins are shrinking due to falling lending rates and weak demand for loans. Observers also expect Beijing to intervene in the property market with measures such as more support for local authorities to buy back empty construction sites and unsold houses from real estate companies.
“The market is pricing in the impact of direct liquidity measures on the economy and the likelihood that there will be enough short-term growth support to move closer to the growth target,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics. “And I think that's a certain amount of price with a less well-defined hope that there will be policies aimed at substantive reform.”
Despite Beijing's desire to boost optimism ahead of the nation's big anniversary, the economy clearly needs help.
In August, youth unemployment was 18.8%, and industrial profits fell by 17.8% compared to the previous year. Sales of the country's 35 listed property companies were 42% lower in September than a year earlier, according to Citigroup.
Government revenues are also falling short of both this year's target levels and last year's receipts. A growing number of economists have begun to predict that GDP growth will fall below 5% for the year.
As the economic picture worsened, fears of social instability grew. Some have blamed a spate of violence, including a series of mass stabbing attacks in Shanghai, on the malaise of the economic slowdown.
It is clear that the authorities want to change the public mood. But without a significant follow-up, some say the euphoria from last week's announcements could fade like previous attempts to boost sentiment. In particular, many economists are calling for broader measures to restore consumer confidence and revive the property market.
Economists Zichun Huang and Julian Evans-Pritchard wrote: “Property support measures announced so far are not that different from previous efforts and would do better on their own.” Capital Economics in a research note on Wednesday.
Indeed, despite the flurry of announcements, Citigroup's Yu wrote this week that he was not changing his GDP growth forecasts of 4.7% for 2024 and 4.2% for 2025.
“24Q3 is basically a done deal with weakening momentum extending into September,” Yu wrote. “The policy effect, if it shows up in the data in Q4, may not really have much of an impact on the full-year data. Given the upcoming winter season and only three months to go, direct demand-generating efforts need to be scaled up quickly to move the needle.”
Meanwhile, companies are doing everything they can to create consumer excitement. In a bid to attract locals to its new 8 billion yuan shopping and office complex in Shanghai, IKEA's parent company Ingka Group launched a series of promotions to mark the center's grand opening on September 26.
The next day, the mall was still buzzing, with a long line going to the snack shop with a “buy one, get one free” offer.
“I heard that a new mall is opening, but I wouldn't have come if it wasn't for the promotions,” said an elderly woman with a large shopping bag. “I'm careful with my spending.”