Has China once again saved the global metal industry, the Australian economy, and the fortunes of people like Chris Ellison of Mineral Resources, along with the sagging renewables sector, especially lithium?
That’s a significant question for traders to answer right now. However, after three days of surprise announcements from Chinese government officials and the country’s central bank, it seems a major campaign is underway to halt the slide of the economy into another round of deflationary stagnation, which could prove fatal to hopes for further growth.
Intriguingly, Federal Treasurer Jim Chalmers flew to China on Wednesday for talks yesterday and today (Friday). The timing places him right in the midst of what appears to be the most serious attempt by the Chinese government to stop the country’s economy from sliding towards bitter deflation, rising unemployment, and stagnating growth.
Thursday saw a surprise statement from China’s leaders regarding support for the economy. This followed an equally unexpected announcement late on Wednesday about a one-off bonus payment for more than 46 million poor people across China, to be issued by China’s National Day on October 1 (next Tuesday).
This could all be another example of smoke and mirrors from President Xi. The official transcript of Thursday's statement was long on clichés and generalities, possibly aimed at the upcoming 75th anniversary of the People’s Republic of China on October 1.
Chinese state media has been flooded with upbeat articles glorifying the “China Way,” without mentioning the grim economic reality that this week’s policy changes and backflips seem to be addressing, or at least attempting to cover up for the time being.
Wednesday also saw another interest rate cut—the one-year indicator rate was reduced to a record low of 2%, following previous rate cuts and assistance packages rolled out on Tuesday.
This news prompted stock markets across Asia, Europe, and the US to surge for the second time in three days, along with key commodities such as iron ore, which is good news for the ASX.
Oil prices dropped by 3% or more on Thursday and Friday (offshore), after media reports indicated that Saudi Arabia had abandoned its three-year effort to defend the $US100 per barrel price level and would now resume price cutting to defend its market share.
News of Thursday’s surprise statement saw China’s CSI 300 index and Hong Kong’s Hang Seng Index jump by more than 4% for the second time in the past three days.
The CSI 300 rose by 4.23% to its highest level in two months on Thursday and by 10.3% over the past three days. Meanwhile, the Hang Seng Index climbed close to 4.16% on Thursday and by more than 9% to a six-month high during the same period.
The Hang Seng Property Development and Management Index surged by nearly 12% on Thursday after the statement hinted at potential support for the property sector. Reuters reported that China is pushing to halt the real estate market’s decline, in what appeared to be the most forceful commitment yet to stabilise the sector, raising expectations of further stimulus measures, which have been underwhelming so far.
The Politburo statement emphasised that the government would strictly control the addition of new housing projects and improve existing ones as part of its efforts to address residential oversupply.
While the Politburo did not offer specifics on fiscal spending, the Ministry of Finance is reportedly planning to issue 2 trillion yuan ($A415 billion) in special sovereign bonds this year, according to Reuters late Thursday.
More importantly for Australia, iron ore prices surged for the third day, closing at $US99 per tonne on the SGX trading platform on Thursday—up from the recent low of $US89.46 per tonne on Monday. This 11% increase over four sessions brings the price back to where it was at the start of the month.
In Thursday’s statement, China’s leaders vowed to intensify fiscal support for the world’s second-largest economy, just days after the central bank announced the biggest monetary stimulus since the pandemic.
Chinese President Xi Jinping chaired a meeting of the Politburo—the second-highest decision-making body in the Chinese Communist Party, after the seven-member Standing Committee, also led by Xi Jinping.
A state media readout of the meeting indicated that leaders had called for strengthening fiscal and monetary policy support. They also stressed the need to “halt” the decline of the real estate market and spur its “stable recovery,” according to a translation of the Chinese text.
This week, the People’s Bank of China cut a minor interest rate on Monday, followed by further rate measures on Tuesday, as well as billions of dollars in support for financial markets and additional financing for companies to carry out buybacks and support share prices.
The statement also confirmed that the government would extend existing support for the real estate market by two years, among other plans.
Wednesday saw another minor rate cut and further positive statements, followed by Thursday’s surprise statement from the upper echelons of the Communist Party.
On Wednesday, the renminbi (or Chinese yuan) strengthened to 6.9951 against the US dollar in the offshore market, up 158 basis points from the previous close and crossing the 7-per-dollar threshold for the first time in 16 months. It edged back to 7.01 on Thursday but remains far stronger than the 7.12 rate a month ago.
Late Wednesday, the Chinese government surprised markets again by announcing a one-time cash allowance for those living in extreme poverty. The subsidy will be provided to “extremely poor people, orphans, and other needy individuals on the occasion of the 75th anniversary of the founding of New China,” according to a statement from China’s Ministry of Civil Affairs, translated by Western media.
The subsidies will be paid before China’s National Day on October 1 (next Tuesday) to “promptly convey the Party and government’s care and concern for the needy.”
The specific amount of the payments was not mentioned.
As of last November, 40.4 million people in China were receiving subsistence allowances.
CNBC reports that the average urban subsistence allowance was around 779 yuan ($US110.80) per person per month, while the rural allowance was 615 yuan per person.
This initiative resembles a smaller version of what some economists have been calling for—a direct financial transfer to Chinese consumers to help revive retail sales, boost consumption, and lift consumer and producer price inflation out of deflation.
