Chinese markets have reacted positively, albeit briefly, to Beijing’s "unprecedented" measures aimed at stabilizing capital markets and boosting investor sentiment. However, the bigger question remains whether these initiatives will be enough to reignite the faltering real economy.
On Tuesday, the People's Bank of China (PBoC) unveiled an RMB800 billion ($114 billion) package to support the stock 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. This marks the first time the PBoC has employed such monetary policy tools specifically to bolster capital markets, a move central bank governor Pan Gongsheng described as "innovative." If successful, the fund could be expanded significantly.
Although the announcement briefly lifted the Chinese stock market, with the CSI 300 index rising 4.3%, economists are skeptical about the long-term impact. Despite the short-term boost, concerns about the broader economy linger. Jason Lui, head of Asia-Pacific equities strategy at BNP Paribas, highlighted the novelty of some of these tools, such as the new lending and swap facility, but acknowledged the uncertainty around how willing institutions will be to assume the risks associated with stock purchases using PBoC loans.
The measures also come amid other PBoC stimulus actions, including interest rate cuts and reductions in downpayment requirements for mortgages. However, analysts, including those at Morgan Stanley, noted that while these initiatives are positive for market sentiment, they are not enough to ensure China’s broader economic recovery.
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.
