China Announces Economic Support Policies That Fall Short of Market Expectations

Chinese stock markets rallied but then lost steam amid an absence of further fiscal stimulus packages being announced.

The Chinese communist regime’s top economic planner announced additional fiscal stimulus actions on Oct. 8, building on last month’s surprise cash injection, though the measures fell short of the substantial package the markets and some financial experts had anticipated.

Zheng Shanjie, chairman of the National Development and Reform Commission, announced an advance of 100 billion yuan ($14.1 billion) from the 2025 central investment budget to be used this year. The regime will allow construction projects, valued at another 100 billion yuan in next year’s budget, to start before the year-end. The measures were of a scale far below the level analysts had been calling for, a package between 2 trillion yuan (283 billion) and 10 trillion yuan (1.4 trillion).

Stock markets in Shanghai and Shenzhen reacted with disappointment to the measures announced at a press conference. They opened high in anticipation, dropped during the press conference, and settled at about 5 percent lower at the end of the day.

Both the CSI 300 index, composed of the top 300 stocks listed on the Shanghai and Shenzhen stock exchanges, and the Shanghai Composite Index, reflecting all stocks traded in Shanghai, opened more than 10 percent higher in anticipation of a large fiscal stimulus package but then lost steam. Hong Kong’s Hang Seng Index showed similar movements and settled at 9 percent lower when the trading day ended.

Before Tuesday’s policy announcement, China’s central bank authorities announced a significant stimulus package on Sept. 24 to address liquidity, property, and stock markets. The regime reduced interest rates on existing mortgages, minimum downpayment amounts, and banks’ reserve requirement ratio, freeing up about 1 trillion yuan (about $141 billion) for new lending and providing relief to some 50 million households. China’s central bank is also backing two new programs with 800 billion yuan ($113 billion) to help listed companies with equity-backed loans and funding for stock buybacks.

Reacting to the above policies, stock markets in Shanghai, Shenzhen, and Hong Kong rose by 15 to 20 percent between Sept. 24 and the day before the market opened on Tuesday, a record gain.

The stock rallies were a rare positive sign for the regime’s ailing centralized economy. Most banks expect China to miss its 5 percent gross domestic product (GDP) growth this year. The infrastructure sector, which accounts for about a quarter of China’s GDP, has experienced diminishing returns since demand waned after decades of building. Local governments and the property market are in heavy debt.

Exports remain one of the bright spots for China’s economy, growing by nearly 9 percent year over year in August. However, the regime’s trade partners are increasingly pushing back against regular dumping of its overcapacity. China’s consumer confidence hit another low of 85.8 in August, slightly above the all-time low of 85.5 in November 2022.

Last week, Jia Kang, a former Ministry of Finance official, told China’s state-owned media that the central bank’s 1 trillion yuan in monetary stimulus would require accompanying fiscal measures to increase domestic demand and spending by the regime. He said that a 10 trillion yuan package in long-term government bonds was not unreasonable.

China’s largest fiscal package so far was during the 2008 global financial crisis, when the country released 4 trillion yuan ($570 billion).

At an Oct. 4 roundtable discussion, hosted by the Washington-based think tank Center for Strategic and International Studies, Brian McCarthy, managing principal at Macrolens, a global macro research advisory firm focused on China, said he expected China’s fiscal stimulus to be in the range of 2 trillion yuan to 3 trillion yuan because party leader Xi Jinping would probably want to prioritize resources over developing advanced manufacturing sectors.

“I think there is a lot of scope for the market to be disappointed later this month when we start to get a sense for how big this package is going to be,” he said.

On the same day, JP Morgan Bank said in a Sept. 24 report that the 1 trillion yuan stimulus showed that Chinese authorities had changed their approach to economic policy. Before last month, the regime had preferred sporadic and limited measures when using financial tools.

JP Morgan also noted that the September stimulus was insufficient for the bank to change its outlook on China’s GDP growth. According to the report’s authors, a significant fiscal stimulus plan will be needed to improve the trajectory of China’s economy, and the specifics of the scale and details of its implementation are still missing.

The bank was also unsure whether the Chinese central bank’s stimulus would boost the confidence of investors and households.

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