China moves to spur growth as economic prospects remain bleak

On September 24, China has unveiled its largest stimulus package since the COVID-19 pandemic – yet measures to boost the world’s second-biggest economy will take time to fuel recovery.

The stimulus package includes monetary policy easing to loosening mortgage policies and funding support for commercial banks. Meanwhile, the government is also set to issue CNY 2 trillion in special sovereign bonds, equal to 1.5% of China’s gross domestic product. A lending pool will also be established to offer refinancing loans to banks that provide credit for company share buybacks.

Chinese stocks saw a notable rally, with the CSI 300 soaring 34% since the announcement. However, the index snapped its 10-day winning streak, as investor sentiment waned due to lack of clarity on the measures to stimulate growth, falling by 7.1% in just one day.

Even with the initially-assumed “bazooka” stimulus, the government is unlikely to meet its 5% GDP growth target for 2024 amid weak domestic demand. For instance, youth unemployment climbed to its highest level since the introduction of its new record-keeping measures, as many university graduates find it hard to get a job. Retail sales growth also eased to 2.1% YoY, below the 10-year pre-pandemic average of 12.5%. Consumer confidence is also down, chiefly due to bleak income expectations.

For China to stimulate its recovery, additional fiscal support must be prioritized, such as increasing infrastructure investment to create more jobs along with raising wages to encourage more consumers to spend.

In summary, maintaining an underweight stance is still warranted, as many details of China’s stimulus plan remain unclear despite temporarily boosting market sentiment. The country’s major problems remain unaddressed, including property sector woes and the slowdown in economic growth.

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ANNA DOMINIQUE CUDIA, MBA, CSS, is the Head of Markets Research at Metrobank’s Trust Banking Group, spearheading the generation and presentation of financial markets insights to internal and external clients. She used to be with Metrobank’s Investor Relations, where she brought in international awards and took part in various multi-billion peso and dollar capital raising activities. She holds a Master of Business Administration (Finance) degree, with distinction, from the University of London, and industry certifications in finance. She is a naturally curious person and likes to travel here and abroad.

SOPHIA THERESE “PIA” BONIFACIO is a Markets Research Analyst at Metrobank’s Trust Banking Group, covering local and offshore macroeconomic research. She obtained her Bachelor’s degree in Economics with a Specialization in Financial Economics, cum laude, from the Ateneo de Manila University and is a Certified UITF Sales Person (CUSP). Pia enjoys long road trips and is a self-proclaimed milk tea connoisseur.