Recent surge in the Chinese stock market has drawn much attention after trading resumed on Tuesday under the stimulus policies of the Chinese Communist Party. Analysts believe that in the short term, the performance of the Chinese stock market will depend on the intensity and effectiveness of the policies, while in the long term, it will be influenced by changes in economic structure and social system.
On Monday, the Hang Seng Index in Hong Kong closed at 23,099 points with a trading volume of 296.8 billion Hong Kong dollars. Whether it can maintain this high level will depend on the performance of the Shanghai and Shenzhen stock markets after opening on Tuesday.
As the National Day holiday in China ended on Monday, the stock market is set to resume trading on Tuesday. The Wall Street Journal cited an article from Barron’s that investors are closely watching the commitment of the Chinese government to encourage increased consumer spending, whether it was evident during the holiday, and whether this commitment can lead to more changes after the holiday.
The State Council Information Office of China will hold a press conference at 10 a.m. on Tuesday, where the Director of the National Development and Reform Commission, Zheng Zhange, among others, will introduce a set of incremental policies to drive the economy.
Brian McCarthy, head of the economic consulting firm Macrolens, predicted that the Chinese authorities will launch a stimulus plan of 5 trillion to 10 trillion yuan, and may also issue 2 trillion to 3 trillion yuan of bonds to raise funds for local governments.
Liu Ting, Chief China Economist at Nomura Securities, believes that in the coming weeks, various ministries and local governments may swiftly implement various stimulus measures, but many of these measures may have limited impact on stabilizing growth and solving practical issues. At best, they may only promote growth in the short term, without addressing the chaotic situation in the real estate market, or solving many structural problems, including financial difficulties.
The Barron’s article also pointed out that massive stimulus plans may not greatly help in addressing the long-term challenges hindering China’s economic growth and increasing structural challenges.
Economists generally agree that the biggest issue in the Chinese economy is insufficient domestic demand, which has been caused by the Chinese Communist Party’s long-standing emphasis on investment over consumption.
The average proportion of household consumption to GDP in countries around the world is about 55%. However, Professor Xu Gao from the National Development Institute at Peking University stated that while China’s per capita GDP is rising, the proportion of household consumption to GDP continues to decrease, currently lower by about 15% than the global average.
Xu Chenggang, a senior research fellow at Stanford University’s China Economic and Institutional Research Center, previously mentioned that inadequate domestic demand is a common feature of authoritarian regimes. The CCP has taken most of the gains from economic development through land and banks, causing this issue.
Craig Allen, President of the US-China Business Council, believes that initiating structural reforms and establishing a social safety net will be welcomed, leading Chinese households to utilize their substantial savings. In the first half of this year, Chinese household deposits increased by 9.27 trillion yuan.
Xu Chenggang said that to address insufficient domestic demand and ensure that the proportion of household income to GDP is not as low as in China, privatization is necessary.
He pointed out that both private enterprises and residents lack confidence in the future, leading to weak corporate investment.
Ajay Krishnan, Chief Investment Manager at Wasatch, stated that when the Chinese government announced a new round of stimulus measures, he was visiting China and was shocked by the “depressed” attitude of Chinese companies, stating that “they lack enthusiasm.” The Chinese government hopes to boost corporate confidence, but it remains uncertain whether they can achieve this as people are not consuming and are pessimistic about the prospects and employment.
Jorry Noeddekaer, Head of the Emerging Markets team at Polar Capital, pointed out that ordinary Chinese consumers and private enterprises no longer trust Chinese leader Xi Jinping to always “do the right thing” for them as they used to.