After four tough years, Francis Lun, who runs a small brokerage in Hong Kong, finally has a reason to smile.
The city’s Hang Seng Index, which had been in decline since 2020 due to economic struggles and pandemic restrictions, turned around dramatically in late September.
This reversal came after China’s leaders unveiled a series of measures to revive the economy.
Since then, the index has surged over 18%, marking its largest two-week gain in nearly two decades.
Although Lun believes these stimulus measures should have come sooner, he acknowledges that any action is better than none.
“Before the announcement, we were barely getting by,” he told CNN. “Now, the phone’s ringing again, and business is picking up.”
Hong Kong and China markets are surging, but whether this momentum continues and benefits the broader economy remains uncertain.
The real economy faces potential deflation and risks missing the 5% growth target.
So far, the focus has been on monetary policy, involving central bank decisions on borrowing costs and inflation control. Beijing has yet to roll out significant fiscal measures, like taxation adjustments or public spending initiatives.
Economists at Nikko Asset Management pointed out that the real issue is low consumer confidence.
They argue that deploying more robust fiscal policies could tackle this confidence crisis, boost risk appetite, and reflate the economy. Without these steps, the rally may not translate into broader economic recovery.
Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, recently noted on social media that this might be China’s “whatever it takes” moment if its leaders take significantly more action than what has already been announced.
This could happen as soon as Tuesday, when the National Development Reform Commission holds a press briefing to introduce new economic policies.
Economists are divided on the specifics of what Beijing should do, but one thing is certain: After years of hesitation, the leadership seems to be acting decisively.
This conclusion comes from the rare joint press conference on September 24, featuring the Governor of the People’s Bank of China, Pan Gongsheng, National Financial Regulatory Administration Minister, Li Yunze, and China Securities Regulatory Commission Chairman, Wu Qing, according to Nikko’s economists.
“In a system where every action is scrutinized, the first noticeable change was the clarity of the official announcement. Gone are the days of vague statements open to interpretation,” they wrote.
The three financial chiefs addressed both local and international journalists at a hastily arranged event, signaling a move towards transparency.
Pan announced a cut in a key interest rate and reduced the cash reserve requirements for banks.
He also unveiled cuts to existing mortgage rates and lowered the minimum down payment for second-time homebuyers from 25% to 15%, aiming to support the struggling property sector, which many economists see as the root of China’s economic issues.
HSBC economists, led by Jing Liu, noted last week that this time feels different, calling the press conference unusual.
They observed that everything seems to be happening simultaneously, but it’s just the beginning.
The investment bank expects Beijing to announce one trillion yuan ($142 billion) in fiscal spending on consumer products or large construction projects to stimulate the economy.
Another trillion yuan may be allocated for recapitalizing banks or aiding indebted local governments in issuing bonds, which could help mitigate financial risks.
According to a Reuters report on September 26, China is set to issue special sovereign bonds worth about 2 trillion yuan ($284 billion) later this year as part of a new fiscal stimulus package.
Funds from these bonds, issued by the Ministry of Finance, will boost subsidies to encourage purchases of larger or newer appliances and upgrade business equipment.
Additionally, part of the money will provide a monthly allowance of approximately 800 yuan ($114) per child to families for each second child and younger siblings.
Some economists believe that under Xi Jinping, China can afford to be more ambitious with its spending.
Jia Kang, former director of a think tank linked to the Ministry of Finance, told The Paper that the recent boost in monetary policy was essential, and fiscal policy needs to follow suit.
He suggested Beijing should issue up to 10 trillion yuan ($1.4 trillion) in long-term government bonds to fund infrastructure and public works that private companies can’t finance.
Jia, now president of the China Academy of New Supply-side Economics, a private think tank, remarked that issuing up to 10 trillion yuan in bonds is “not unreasonable,” given China’s past actions.
In 2008, the country launched a four trillion yuan ($570 billion) fiscal package to counter the global financial crisis.
Jia noted that China’s economy has grown enough since then to support Treasury bond financing between four and 10 trillion yuan.
Barclays analysts believe a 10 trillion-yuan fiscal package over two years could significantly impact the economy, adding one percentage point to growth.
However, they caution that this plan is still “speculation.” Experts emphasize that any effective stimulus must address the property market’s oversupply issue.
BNP Paribas Asset Management’s Chi Lo remarked that the policy shift has sparked a strong rally in Chinese stocks.
However, sustained economic recovery will require solid conviction for a true turnaround.
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