The CCP is considering a $278 billion financial stimulus to give new life to the country’s hailing stock exchanges.
The Chinese Communist Party is weighing the possibility of a massive financial stimulus to revive China’s struggling stock market. According to people familiar with the matter cited by CNBC, this stimulus should equal 2 trillion yuan ($278 billion).
China usually operates two stock markets: Shanghai for domestic trade and Hong Kong for offshore trade. The CSI 300 index, following the performance of Mainland China’s largest companies, fell by 11.4% in 2023. Hong Kong was the worst-performing stock exchange in Asia, losing almost 14% overall.
Furthermore, the Chinese market has been severely hit by a wave of deflation. After the CCP lifted COVID restrictions in December 2022, analysts expected a strong economic recovery but were left disappointed.
Lower manufacturing output and slower trade with Europe and the US caused China’s deflation. Prices are too low and unemployment too high for the economy to grow properly. In the third quarter of 2023, China’s GDP growth was smaller than the US’s.
The announcement of a stimulus was given by China’s Prime Minister Li Qiang following a contradictory statement at the World Economic Forum in Davos. On that occasion, Li reminded that China never resorted to financial stimulus and rather “focused on strengthening the internal drivers.”
Nevertheless, Li commented “We must take more powerful and effective measures to stabilize the market and confidence” during a state council meeting in Beijing.
The end of the Chinese century
Another reason for China’s stock market backdrop was the continued real estate crisis gripping the entire country. When, in 2021, Chinese real estate giant Evergrande defaulted on its debt, it revealed deep cracks in the whole sector
The real estate market takes up almost 30% of China’s GDP but grew out of a financial bubble that finally exploded in 2023. Now, other Chinese developers are in deep financial trouble, including its now-largest real estate company Country Garden.
Evergrande shares dropped by over 99% when it reopened trade, bringing the whole Hong Kong stock exchange down with it.
According to experts and observers, China built “more houses than people”, with Chinese citizens losing trust and refusing to buy new properties.
The real estate crisis, combined with the aforementioned deflation and falling trade activity, marks the end of China’s meteoric growth. What many considered “the Chinese century” might well finish here, as the United States ramps up domestic manufacturing and GDP.
A $278 billion financial stimulus might make the difference, giving new life to a struggling market. But it will still take time to regain investors’ trust.
