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Chinese Equities Surge...
On 24 September 2024, Chinese regulators unveiled a significant series of stimulus packages aimed at revitalising both the financial and consumer markets. The measures included a policy-rate cut, reductions in mortgage rates, and an 800 billion yuan ($114 billion) boost for the stock market. By 29 September, China’s Premier Li Qiang announced plans to accelerate easing measures with a further 2 trillion yuan ($283.5 billion) in fiscal spending for consumer handouts and local government refinancing, as well as 1 trillion yuan ($ 141.4) to recapitalise banks—although the latter has not been formally announced.
As a result, Chinese equities surged, marking the biggest single-day rally in 16 years, with domestic A-shares hitting their highest-ever turnover such as Alibaba, Baidu and Ping Dou Dou. The CSI 300 Index, which tracks the top 300 stocks on the Shanghai and Shenzhen exchanges, advanced by 25% over a five-day period, reflecting one of its strongest weekly gains. The broader Shanghai Composite Index also surged, registering a total turnover of 1.17 trillion yuan ($166.84 billion).
This large injection of stimulus may appear sudden, but it has been foreshadowed for years. The policy moves align with past statements from Chinese leadership, emphasising the need to expand domestic demand:
In May 2022, Premier Li Qiang stressed the importance of enhancing consumption during the Central Economic Work Conference.
In March 2023, during the Two Sessions meeting, a shift to domestic consumption was emphasised as the new direction for growth.
In April 2024, concerns about lagging consumer spending were raised at an Economic Policy Meeting, highlighting the need for consumption-driven growth in rural areas.
This issue of low domestic consumption is far from new and not particularly unique. Many countries have faced similar problems, and the usual response is stimulus. However, it’s worth considering that just because a stimulus package is deployed, it does not mean that money will be spent.
Chinese consumers have historically been more hesitant to spend, both due to cultural and economic reasons. This trait is seen even more clearly when comparing a Chinese consumer to a Western consumer; in China, household saving rates stand at 34% compared to 4.8% in the US.
If consumer spending persists at current levels and structural economic changes are not implemented, it may potentially lead to a devaluation of the yuan. Moreover, the sharp gains in Chinese equity markets do not address the underlying issues the stimulus aims to resolve. With this in mind, will this historical stimulus package be sufficient to steer China toward sustainable economic recovery?
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