While China’s latest stimulus package may not have met investors’ expectations, fund managers have not completely ruled out a Chinese economic rebound, suggesting that stronger, more targeted stimulus support could eventually lead to a strong recovery.
At a much-anticipated press conference on Tuesday (China Standard Time), Zheng Shanjie, chairman of China’s National Development and Reform Commission, outlined several measures to boost the economy, expressing “full confidence” of China in achieving its 5 percent growth target for the year. year.
China, Zheng said, will initially spend 100 billion yuan ($14.19 billion) of its 2025 central budget on investment and another 100 billion yuan for projects supporting major strategies and key areas. .
Other measures to boost domestic spending and support the real estate market were also announced, but were described as “vague” by Jun Bei Liu, portfolio manager at Tribeca Investment Partners.
Economists had previously signaled that more fiscal stimulus would be needed after the People’s Bank of China (PBOC) announced a monetary stimulus plan last month that includes a reduction in reserve requirement ratios and policy interest rates , lower mortgage rates and down payment requirements for second homes, and the implementation of fiscal stimulus measures. new structural monetary policy tools to support the stock market.
Although market sentiment initially improved, it quickly became clear that these monetary measures would likely be insufficient to stimulate domestic growth. At that time, focusing stimulus measures on infrastructure investment, social spending and local government financing was seen as key to boosting China’s slowing economy.
“Before the [latest] After this announcement, it was expected that 2 trillion yuan would be returned, like helicopter money, to be injected into the economy. Everything they said [on Tuesday] The goal was to really reinforce what they’ve announced so far, which to me is disappointing,” Liu said.
She noted that a key issue hindering China’s efforts to reverse its economic decline and restore confidence is the government’s tendency over the past 18 months to implement small measures and provide vague indications of potential recovery measures.
The hours following Zheng’s announcement were marked by trading volatility on Chinese markets. The Hang Seng Index initially fell about 9 percent, while the Shanghai Composite Index gained 4.6 percent.
As of 4pm AEST on October 9, both indices were down, by 1.4 per cent and 5.3 per cent respectively.
According to Liu, while the new stimulus measures, coupled with the People’s Bank of China’s announcement last month, are certainly welcome, investors are looking for “something bigger” to revive their confidence in the Chinese economy. .
Currently, she believes they have given up on prospects for a strong recovery.
“There’s going to be a recovery, but it’s going to be very slow, and I certainly think that by the end of this year things will still be slow. By next year we hope the situation will start to improve,” she said.
However, Liu believes there are still opportunities in the Chinese market, especially in consumer-oriented businesses. She stressed that, despite the new stimulus measures, Chinese consumers have already received significant liquidity and support, and once confidence improves, they will have the “firepower” to spend.
“Ultimately, people need to sit down and realize that China’s economy will eventually recover, and it’s just a matter of confidence, which can change quite quickly,” she said.
“What the government really needs is a number of announcements just to maintain confidence. Obviously they were disappointed with this one and there were so many expectations, [but] I think it’s not far off, because they can’t afford a slowdown in the economy.”
Nicholas Yeo, head of China equities at abrdn, noted a “substantial disconnect” between valuations and earnings of quality Chinese companies, pointing out that improved PBOC liquidity could lead to sustainable revaluation and behavior more rational market, potentially leading to upward revisions to profits. .
With better market liquidity, he anticipates “more rational behavior”, suggesting upward revisions could take place by 2025, up from this year’s low-teens earnings growth.
Yeo stressed that the government must implement fiscal stimulus measures for the recovery to be sustainable, noting that the recent plan could signal a “new urgency” to combat the economic slowdown and represent a “step change” in intentions. policies.
Earlier this week, the World Bank warned of a slowdown in the second-largest economy.
He said growth in China would decline from 4.8 percent this year to 4.3 percent in 2025, facing challenges from low consumer and investor confidence, continued weakness in the property market and headwinds. structural factors linked to global tensions and the aging of the population.
Noting that while fiscal support “can boost growth in the short term,” the World Bank warned that long-term growth “will depend on deeper structural reforms.”
