(25 September 2024 – China) Beijing has unveiled “unprecedented” stimulus measures not seen since the 2008 Global Financial Crisis to stabilise capital markets and recuperate deeply pessimistic investor sentiment.
Will the initiatives be enough to reignite the faltering real economy at a time when large corporates are actively shifting their supply chains to other APAC markets?
The People’s Bank of China (PBoC) unveiled interest rate cuts, reductions in mortgage downpayment requirements and an RMB800 billion (US$114 billion) package to support the share market by providing loans to asset managers, insurers, and brokers for equity purchases as well as offering funds for listed companies to conduct stock buybacks.
The Renminbi (RMB) touched its strongest level since 2023 after Beijing unveiled the stimulus measures to support the stagnating economy. Unlike the US Federal Reserve’s focus on a central interest rate and floating exchange rate, the PBoC uses a variety of rates to manage monetary policy and strictly controls the value of the RMB.
Economists argue that a more comprehensive fiscal stimulus is required, particularly to address the ongoing property slump, which continues to weigh on household confidence and spending. Without a significant bailout for the property sector, experts warn that consumer spending will remain subdued, prolonging the economic slowdown despite efforts to boost the stock market.
“Without the presence of other ministries, we have concerns about the impact on the real economy because China seems to have fallen into a liquidity trap. In our view, an aggressive fiscal policy is required to inject genuine economic demand” commented ANZ Greater China Economist Raymond Yeung.
“We think the weak growth and low inflation environment in China should put some pressure on RMB going forward” said abrdn Head of China Fixed Income, Edmund Goh.