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SHANGHAI -- The sweeping stimulus measures announced in Beijing last week appear to have lifted the tired spirits of entrepreneurs like Yu Gong, founder and CEO of video streaming platform iQiyi.
"Some people say that the next 10 years of the big bull market has begun," he remarked as he kicked off a presentation in Shanghai on Sept. 25, a day after Chinese stocks had begun the torrid rally that turned a market some foreign observers had called "uninvestable" earlier in the year into one of 2024's hottest.
Beijing's latest attempt to boost sentiment has succeeded far more than its many previous tries over the past year and a half since the country's post-COVID rebound began sputtering out. Yet many analysts are wary of calling an end to China's economic troubles, with the full scope of the government's planned stimulus yet unclear and, in the eyes of some, still likely to be inadequate to end the country's deflationary funk or even ensure the official 2024 growth target of "around 5%" is met.
"The shift in Beijing's approach to deflation is a good start, though more aggressive central government stimulus is needed," wrote Morgan Stanley chief China economist Robin Xing in a client note this week. "We believe the policy easing for the remainder of this year could rein in further fiscal tightening, but is probably insufficient to engineer a strong growth recovery."
Last week's moves, evidently timed to give markets a lift ahead of the 75th anniversary of the founding of the People's Republic of China on Oct. 1, were bigger than most analysts had anticipated.
Particularly unexpected were measures from the People's Bank of China on Sept. 24 to directly boost share prices, namely the allotment of 500 billion yuan ($71.2 billion) to indirectly finance stock purchases by institutional investors and 300 billion yuan to support company stock buyback programs.
The Chinese Communist Party Politburo, chaired by President Xi Jinping, then held an unexpected meeting focused on the economy. It concluded on Sept. 26 with calls for a "significant interest rate cut," the "countercyclical adjustment of fiscal and monetary policies" and an end to "the decline of the property market."
The stock market got the message immediately. The CSI 300 Index, which tracks the top stocks listed on the Shanghai and Shenzhen exchanges, wrapped up trading on Monday, ahead of the extended National Day holiday, at 4,017.855, up 25.1% from a week earlier. Trading has since been suspended, but some brokers have stayed open around the clock to accommodate a surge of requests to open trading accounts.
The rally means the CSI 300 is now up 17.1% so far in 2024, as compared with 11.5% for the Dow Jones Industrial Average and 15.1% for the Nikkei 225 as of Thursday.
There are some signs Beijing's messaging is having an impact on China's moribund property market, too. According to Citigroup analyst Griffin Chan, more homes were sold in the city of Hangzhou on Sept. 26 and Sept. 27 than the whole previous week; at the same time, the developers of two luxury projects in Shanghai successfully sold all their units.
A further test of consumer confidence will come after the holiday period ends on Monday as retail spending and home sales for the period are tallied.
To kick things off, movie ticket sales on the first day of the holiday, at 494 million yuan, were 14.9% higher than a year earlier, CCTV reported. To keep the momentum going, both the Chinese public and observers will be looking for Beijing to follow up on last week's pledges of economic action by spelling out its plans to support consumers and rescue the property market.
Morgan Stanley's Xing thinks the National People's Congress Standing Committee might approve a supplementary government budget of 1 trillion yuan to 2 trillion yuan later this month. Citigroup counterpart Xiangrong Yu is forecasting a consumption support package worth 3 trillion yuan, speculating that it will probably include additional subsidies for shoppers trading in for new cars and appliances, vouchers for spending on specific products and services, improved benefits for the unemployed and other disadvantaged groups, tax cuts and higher childbirth subsidies.
"We should see meaningful fiscal follow-up measures before end-October," Yu wrote on Monday. "Otherwise, investor patience would wear off."
Expectations are also rising that Beijing will inject capital into the country's major banks, as indicated by Li Yunze, head of the National Administration of Financial Regulation, at the same news conference at which the PBOC announced its interventions.
Such a move could shore up confidence in the country's banks, whose net interest margins have shrunk due to declining lending rates and weak demand for loans. Observers also anticipate that Beijing will further intercede in the property market with measures such as greater support for local authorities to buy back idle development sites and unsold homes from real estate companies.
"The market is pricing in the impact of direct liquidity measures on the economy, and the likelihood that there's going to be sufficient short-term growth support to get close to the growth target," said Duncan Wrigley, chief China economist at Pantheon Macroeconomics. "And I think it's pricing in a certain amount of less clearly defined hope that there will be policies that go towards fundamental reform."
On top of Beijing's desire to pump up optimism ahead of the state's big anniversary, the economy has been clearly in need of help.
Youth unemployment hit 18.8% in August, while industrial profits fell 17.8% from a year earlier. Sales at 35 of the country's listed property companies were 42% lower in September than a year before, according to Citigroup.
Government revenues have also been running below both this year's target levels and last year's receipts. A growing number of economists had begun forecasting that gross domestic product growth would fall below 5% for the year.
As the economic picture has worsened, jitters over social instability have grown. Some have connected a series of violent incidents, including mass stabbing attacks in Shanghai, to malaise from the economic slowdown.
It is clear the authorities are keen to shift the public mood. But without substantial follow-through, some say the euphoria over last week's announcements could wear off as previous attempts to boost sentiment have. In particular, many economists are calling for broader measures to rebuild consumer confidence and revive the property market.
"Despite driving a surge in developer stock prices, the property support measures announced so far aren't that different from previous efforts and are unlikely, on their own, to deliver much better results," wrote economists Zichun Huang and Julian Evans-Pritchard of Capital Economics in a research note on Wednesday.
Indeed, despite the flurry of announcements, Citigroup's Yu wrote this week that he was not changing his forecasts of GDP growth of 4.7% for 2024 and 4.2% for 2025.
"24Q3 is a done deal now with weakening momentum largely extending into September," Yu wrote. "Policy effect, if surfacing in data into 24Q4, may not really have much impact on the full year data. Given the coming winter season and only three months left, direct demand-generating efforts need to scale up quickly to move the needle."
In the meantime, companies are doing what they can to try to generate consumer excitement. To draw locals to its new 8 billion yuan shopping and office complex in Shanghai, IKEA parent company Ingka Group launched a series of promotions to mark the center's grand opening on Sept. 26.
The next day, the mall was still bustling, with a long line leading into a snack store with a "buy one, get one free" offering.
"I heard a new mall was opening, but I would not have come without the campaigns," said an older woman carrying a large shopping bag. "I am cautious about my spending."
