The Beijing Stock Exchange, on Nov. 15, 2021.TINGSHU WANG/Reuters
China’s stock markets spiked Tuesday as retail traders piled in after a week-long national holiday, with buying boosted by long-awaited stimulus measures announced late last month and the assumption that more were on the way.
But at a news conference the same day, officials unveiled few new initiatives, suggesting Beijing may be wary of feeding a bubble in a stock market largely disconnected from the rest of the flagging Chinese economy.
Zheng Shanjie, chair of the National Development and Reform Commission (NDRC), said China was facing a “complex internal and external situation.” Nevertheless, he added, Beijing was “fully confident” of hitting its GDP growth target of around 5 per cent, as the “fundamentals of the Chinese economy remain the same.”
On Sept. 24, the government cut interest rates, reduced down payments for mortgages and freed up reserves for banks to lend, while municipalities across the country eased restrictions on real estate sales to boost the property market.
While the stimulus was not as strong as some analysts had hoped for, Chinese shares posted their best week since 2008, and the Hong Kong market continued to surge last week while the country’s other bourses were closed for the holiday. The mainland exchanges skyrocketed immediately after reopening Tuesday, but quickly pulled back as it became clear Mr. Zheng and his colleagues were more focused on recapping steps already taken than announcing any new stimulus.
The NDRC did announce some measures, including front-loading 100-billion yuan ($19.3-billion) from the 2025 central budget to support local governments, many of which are struggling with heavy debt loads. But most of what Mr. Zheng and his colleagues discussed were existing targets, such as providing greater support for young people and migrant workers and boosting domestic consumption. The first question to Mr. Zheng, from state broadcaster CCTV, was whether he had any “concrete actions” to unveil, prompting a long answer that, from the market’s perspective, may as well have been a simple “no.”
Su Yue, principal economist for China at the Economist Intelligence Unit, said in a note that while the “overall message of the press conference remains positive,” it clearly “fell short of market expectations.”
The Chinese economy has struggled to recover since the pandemic amid domestic and international headwinds such as the ongoing property crisis, demographic pressure and growing protectionism in the West. Beijing has long spoken of the need to reorient the economy toward “new productive forces,” including high-tech development and boosting domestic demand, but this transition has been difficult and slow to take off.
China’s stock market is largely untethered from the wider economy and highly subject to retail trader sentiment, with wild swings for stocks that are in the news or related – even tangentially – to government policies. The markets saw major turbulence in 2015 and 2016 after a previous stock bubble popped, and officials may be wary of a similar boom-and-bust while the economy is much weaker.
Ms. Su noted the stock market “has previously created many structural problems for China’s economy” and the government “does not want the booming stock market to exacerbate already worsening wealth distribution issues.”
There were some indications of this ahead of reopening, with Xu Zhong, a former official at the People’s Bank of China who now works for a state-backed financial institution, rebutting claims that the central bank was intervening in the stock market and warning against “blind speculation.”
“Promoting high-quality development and structural reforms is a long-term process that requires sustained effort,” Mr. Xu wrote.
Similarly, Global Times, a state-run newspaper, said in an editorial early Tuesday that “we must realize that many problems cannot be solved overnight.”
“In addition to fostering short-term confidence, we also need to build a solid foundation for long-term confidence,” the paper added.
Even if Tuesday’s lack of new stimulus measures was disappointing for some, plenty still made hefty gains in the markets, with turnover exceeding 3-trillion yuan, a new record. For many ordinary Chinese traders, the recent tally has come as a welcome distraction from months of dire economic news and concern over the future.
Fu Chong, an IT developer in Wuhan, said he had made good profit on shares he bought just before the October holiday, and with stocks up he felt “the overall social atmosphere has improved.”
Reflecting a common concern that has bedevilled Chinese policy-makers as they try to encourage domestic consumption, Mr. Fu said that in recent years, “with the economy not doing well, I didn’t dare to spend much.”
“This time, the government’s intervention has significantly helped to make up for people’s losses experienced during the pandemic, both financially and emotionally,” Mr. Fu said, though he added he did not expect the rally to last too long. “Speaking for myself, I’m just looking to make some quick gains and then exit.”
With files from Alexandra Li in Beijing.