BEIJING — A wave of optimism swept Chinese markets recently when Beijing announced a stimulus package many hoped would pave the way for a wave of investment to help fuel a recovery for the world’s second-largest economy.
Traders rushed to buy Chinese stocks, sending the top Shanghai and Hong Kong indexes soaring.
But the measures that Beijing’s economic planning agency announced this week proved to be an anticlimax — the trillions of yuan that observers were hoping would be revealed never materialized. Investors were disappointed to say the least: Hong Kong’s Hang Seng index suffered its worst daily drop in 16 years and Shanghai’s CSI 300 closed down for the first time in 11 days.
That slump comes against a gloomy economic backdrop for China, which is still struggling to recover from the Covid-19 pandemic and is beset with inflation and a sluggish property market. This year, youth unemployment reached a record high of 18.8%. Beijing might even miss its annual growth target of 5% — a figure it often surpassed prior to the pandemic.
Beijing said at a news conference Tuesday that it was “confident” it would meet its economic targets, and that message has been repeated by Chinese President Xi Jinping, who has stated his goal of turning around his flagging economy. Late last month, he described China as being “well prepared” to overcome the “potential dangers” to his country’s prosperity.
But while Chinese officials project confidence, the markets and the country’s public seem less convinced.
“Beijing is signaling to the market that there will be more stimulus ahead, but it will be measured and it will be phased,” said Keyu Jin, an associate professor at the London School of Economics and the author of “The New China Playbook.”
The Communist Party has good reason to approach the situation cautiously. In 2021, the collapse of China’s real estate sector just as the country began lifting its pandemic restrictions sent shockwaves through the economy. For many Chinese people, property is where they parked their savings, and the wipeout was brutal for ordinary homebuyers.
China’s economic sluggishness comes at a time when, diplomatically and militarily, it finds itself locked in a fierce rivalry with the U.S. and its allies, and the trade war that began with the Trump administration has only persisted under President Joe Biden. Its broader financial lethargy and this week’s market turmoil will hardly be welcomed by Beijing.
But what do this week’s events mean for ordinary Chinese citizens? For Fu, a 24-year-old graduate student in Beijing, this month’s paroxysms don’t change much on the ground. “Chinese people’s money isn’t really in the stock market. They tend to prefer saving,” said Beijing-based Fu, who declined to give his first name out of fear of repercussions for criticizing government policy.
Some of those who dabble in the stock market have been vocal about rising indexes in recent weeks, with users on Chinese social media reacting with enthusiasm. Even so, “they just want to rush and make fast money,” said Miao Yuqing, a 50-year-old retired professional trader in Beijing.
“Most of them didn’t even understand the market,” Miao added, saying that ultimately “the market is very opaque … so in the end it’s only the elite making money.”
Far more likely to affect regular citizens is the raft of measures announced on Sept. 24 including rate cuts, making borrowing easier and freeing up commercial banks from having to hold large amounts of reserves. China also announced a new draft law on Friday that aims to revive its private sector.
Economists say Beijing has more stimulus up its sleeve.
“What China needs is to do structural reforms,” said Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, pointing to bigger pensions and unemployment benefits. “I do think they will announce something in that regard.”
Domestic stimulus aside, there have been outward signs that China’s economy is in trouble. In August, Beijing entered into an agreement with Washington to cooperate on future financial stability. That’s a far cry from the long-running geopolitical rivalry in which the world’s economic superpowers remain locked.
As for what’s next, Zheng Shanjie, chairman of China’s National Development and Reform Commission, said Tuesday that China is “fully confident” of achieving its full-year growth target of 5%.
That target might be a bit optimistic for some analysts. Yue Su, principal economist at the Economist Intelligence Unit, said her team was maintaining an annual forecast of 4.7% for 2024, as it will take time for the aid injection to translate into “strong” economic activity.
“It is clear that the government does not want to exhaust its policy tools too quickly,” Su said in a note, adding that the government could announce more support to “boost the real economy, recapitalize banks, and stabilize the property market.”
