Oct 8 2024: On Tuesday, China expressed “full confidence” in achieving its full-year economic growth target but did not announce significant new fiscal measures, leaving investors who had hoped for stronger policy support disappointed. Chinese shares initially rallied to two-year highs after the National Day holiday but quickly lost momentum, with Hong Kong stocks also retreating as stimulus optimism faded.
During a press conference, Zheng Shanjie, Chairman of the National Development and Reform Commission (NDRC), announced that the government plans to allocate 200 billion yuan ($28.3 billion) in advance budget spending and investment projects starting next year. He emphasized the need to accelerate fiscal spending and encouraged continued efforts to strengthen macroeconomic policies.
Zheng acknowledged global challenges, including increased volatility in international markets and intensified trade protectionism, which he said could negatively affect China through various economic channels, including trade, investment, and finance.
However, many investors and analysts believe that more fiscal policy support is required to maintain optimism, with expectations that additional measures will likely come from the finance ministry. “The NDRC press conference lacked details on stimulus measures, leaving expectations unmet,” said Christopher Wong, currency strategist at OCBC.
Ahead of the week-long Golden Week holiday, China had introduced its most aggressive monetary stimulus package since the pandemic, alongside significant support for the property sector. Premier Li Qiang urged government departments on Tuesday to support growth and improve policy coordination during a special study session on economic policy.
Analysts anticipate that China will need further fiscal support to stabilize the economy. Yue Su, principal China economist at the Economist Intelligence Unit, predicted 1-3 trillion yuan in additional fiscal measures this year and next to stimulate the economy, recapitalize banks, and support the property market. Su added that this stimulus, combined with special long-term bonds planned for next year, would primarily affect economic growth in 2025. The unit maintains its forecast of 4.7% growth for 2023 and 4.8% for 2025.
Although the government set a growth target of around 5% for the year, economic momentum has slowed since the second quarter, hampering consumer spending and business confidence, particularly in the property sector. A private report by recruiting platform Zhaopin showed a 2.5% decline in average salaries across China’s 38 major cities in the third quarter compared to the previous quarter, and a 0.6% year-on-year decrease.
To address weak domestic demand, Zheng mentioned that policymakers would focus on improving people’s livelihoods to encourage consumption and investment. This would involve measures like supporting vulnerable populations, promoting consumer goods trade-ins, and enhancing elderly care and birth-related policies, although further details were not provided.
Vice Chairman Liu Sushe of the NDRC confirmed that most of the 6 trillion yuan in government investments this year had been allocated to specific projects, with 90% of local government special bonds issued by September. Another vice chairman, Zhao Chenxin, remarked that China’s economy remained “generally stable” during the first three quarters of 2023.
The government has issued 1 trillion yuan of ultra-long-term special bonds for major projects this year, with more planned for 2024, Zheng added.
(Exchange rate: $1 = 7.0597 Chinese yuan)
