How China’s 2024 stimulus compares with past packages, and what’s next?

Published October 3, 2024

In nominal terms, the massive package has the potential to be China’s biggest ever

Chinese leaders surprised the world last week by announcing wide-ranging stimulus measures and issuing a rallying cry to Communist Party officials in a bid to lift a weary property sector, stoke consumption and revive capital markets – all hallmarks of China’s economically challenging 2024.

China has tried writ-large stimulus before. Here we take a look at what has been done in the past, and what to expect in the near future, according to two international investment banks.

How big could this round of stimulus be?

The total size of China’s stimulus package this year, including plans announced last week, is estimated to be about 7.5 trillion yuan (US$1.07 trillion), or equivalent to 6 per cent of the country’s GDP in 2024, Deutsche Bank said in a research note on Thursday.

This could “potentially become the largest in history, in nominal terms”, if the government delivers on all of the announced measures, according to Deutsche Bank.

 

The 7.5-trillion-yuan estimate includes a combined 2.5 trillion yuan cut in mortgage-debt servicing and two new 800 billion yuan “facilities” for the stock market, according to announcements on September 24 by the People’s Bank of China.

 

The central bank also factored in an estimated 2 trillion yuan worth of bond issuance to help consumers and encourage local government spending, along with an additional 1 trillion yuan in capital for major state-owned banks, as the Politburo meeting on September 26 committed to more fiscal stimulus.

 

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SOURCE: www.scmp.com

RELATED: Xi Jinping’s belated stimulus has reset the mood in Chinese markets

But can the buying frenzy last?

Published October 3, 2024

If Chinese retail investors had their way they would forgo the seven-day National Day holiday that ends on October 7th.

An aggressive stimulus package, announced in Beijing on September 24th, has unleashed the biggest weekly stockmarket rally the country has witnessed in more than 15 years. Major indices have soared more than 25%; the Shanghai stock exchange has suffered glitches under the volume of buying activity. The prospect of halting for a full week has made netizens anxious: “We must keep trading; we must cancel National Day,” one young investor screamed into a video widely shared on WeChat, a social-media platform.

 

Some 2trn yuan in fiscal spending for consumer handouts and local-government refinancing, as well as 1trn yuan to recapitalise banks, have been reported but not announced formally. Debate over the effectiveness and scale of this long-awaited bail-out has raged. But local and foreign investors agree on one point: Xi Jinping, China’s supreme leader, has finally woken up to the severe problems ailing China’s economy and changed his approach to fix them.

The effect has been to instantly lift the gloom that has hung over the country after hopes of a strong post-pandemic recovery faded in mid-2023. One article circulating on September 30th told how a young retail trader made 520,000 yuan that very morning. Stock-picking tips have flooded social media even though most stocks listed in China and Hong Kong have surged. All the while investors have ignored gloomy economic news, such as data released on September 27th that showed industrial profits tumbling by almost 17%, year on year, in August. Even as ChiNext, the Shenzhen stock exchange’s main index, surged by 15% on September 30th, a survey of purchasing managers suggested that manufacturing activity continued to contract.

 

 

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SOURCE: www.theeconomist.com

 

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