China’s stock markets had a volatile day on Monday, showing mixed responses to the finance ministry’s latest fiscal policies, released during a closely watched briefing over the weekend.
Hong Kong shares dropped 0.75% while its mainland peers rebounded, including the Shanghai Composite’s 2.07% gain, although the rally slowed.
While some investors remained hopeful on Beijing’s promise of fiscal support, analysts warned that the fiscal measures, along with the central bank’s monetary easing in late September, are neither aggressive enough nor growth boosting although they are in “the right direction” to address structural issues facing the world’s second-largest economy.
Disappointing fiscal stimulus
“Markets conversation has already started to come up with the consensus that monetary injection or interest rate cuts cannot fix the fundamental problem,” Raymond Yeung, the Hong Kong-based chief economist of Greater China at the Australia and New Zealand Banking Group, told VOA on Saturday.
He added that investors in China were left guessing on the size of the government’s stimulus.
Prior to the weekend briefing, investors were reportedly hoping for a 2 trillion to 10 trillion yuan ($283 billion-$1.4 trillion) stimulus package as China had pumped 4 trillion yuan ($564 trillion) to bail out its economy in 2008.
China’s Finance Minister Lan Foan, however, stayed mum on the size of the stimulus package Saturday, although he pledged support to defuse local debt risks, bolster the country’s sagging property market and hinted at a deficit increase for additional fiscal support, if needed.
That, Yeung said, was a “very conservative approach” since Beijing probably doesn’t want “a stock market bubble,” yet it wouldn’t help Chinese stock investors assess their trade this week.
Stimulus can’t fix the economy
He also expected market corrections to continue, as investors are concerned over whether Beijing’s stimulus plan can make the immediate growth-boosting impact to reverse high unemployment rates and the economic slowdown.
The central bank’s monetary easing failed to reduce inflation in September, with both consumer and producer price growth falling short of expectations and deflationary pressures continuing to worsen.
China’s consumer price index, a key gauge of inflation, grew lower-than-expected by 0.4% last month, compared to August’s increase of 0.6%, China’s National Bureau of Statistics said Sunday.
Also, China’s producer price index, which measures the cost of goods at the factory gate, fell by 2.8% in September, marking the 24th consecutive month of decline.
But the monetary policy helped push China’s stock prices higher for seven consecutive trading days before they took the biggest dive since 2020 last Wednesday due to a lack of new stimulus measures.
Stock market correction to continue?
On Saturday, while some users of the Chinese social media platform, Weibo, shared Lan’s optimistic views toward China’s economic outlook, others expressed disappointment, saying that they expect Chinese shares to see a weeklong free fall.
A Weibo user in Hunan, named “adrianolove1999,” wrote that he expects to ‘’bottom fish’’ this Friday. ‘’Why Friday? Because the shares will have a five-day losing streak.”
He Jiangbing, an economist based in Hubei, China, said, by his estimate, the finance ministry is planning at least 3.2 trillion yuan ($451 trillion) worth of bond issuances, which await a final approval from the standing committee of the National People’s Congress when it meets later this month.
Those will include 1 trillion yuan ($141 trillion) to replenish six major state-run bank’s capital for lending, another 1.2 trillion yuan ($169 trillion) as debt relief for local governments and the remaining 1 trillion yuan ($141 trillion) as subsidies to boost consumption or reserved for the under-privileged class, he added.
Given the central government’s financial difficulty, He describes the size of the stimulus plan as “good enough” to help ease liquidity or boost share prices.
Putting the cart before the horse
But such money-printing measures won’t address the root cause of China’s economic slowdown, he said.
“The [Chinese] economy won’t be revived by such fiscal policy, which can only keep the economy from collapsing. This is putting the cart before the horse. Printing money won’t solve any problem,” the economist told VOA by phone.
China needs to improve its relations with the world’s major economies, which in turn will boost its exports and stop the exodus of foreign businesses, especially at a time when two thirds of China-based Japanese companies have left, he said.
China also needs to reverse its emphasis on state-run businesses and its earlier course of tightening regulatory oversight, which has been threatening the survival of private enterprises, he added.
Without addressing these root causes first, he argued, China’s economy won’t recover.
