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Chinese stocks hit their highest level in more than two years on Tuesday as Beijing pledged more support for the economy and investor expectations for further stimulus remained high.
The mainland blue-chip CSI 300 index opened up 10.8 per cent after being closed since last Tuesday for a weeklong holiday. It fell back to trade 7 per cent higher in late morning as Beijing stopped short of unveiling significant new fiscal stimulus.
Expectations had built among investors that Chinese officials would outline further support for the economy to complement a monetary stimulus launched at the end of September, which sent Chinese equities soaring to their best week since 2008.
Hong Kong’s Hang Seng index, which was open for most of last week, fell as much as 9 per cent in the morning session after rising 11 per cent over the previous 5 days.
“Now [that] the mainland is open, people are selling Hong Kong to fund buying the real deal [mainland Chinese shares],” said one Asian trader who did not want to be identified.
China’s policy rally has restored a measure of optimism into the country’s stock markets. Global financial institutions including Goldman Sachs, Citi and HSBC have grown more bullish and raised their targets for Chinese equity performance.
Zheng Shanjie, chair of the National Development and Reform Commission, China’s state economic planner, told reporters in Beijing on Tuesday that he had “full confidence” the country would reach its official full-year growth target of around 5 per cent.
He pledged to prioritise consumption and expand domestic demand, as well as giving deeper support for China’s poor and students.
Zheng also said the Chinese government would keep issuing ultra long-dated sovereign bonds in 2025 — an indication of more support for the economy.
He said the government would front-load about Rmb200bn ($28bn) from next year’s budget for spending and investment projects. He also signalled a faster pace of bond issuance to support growth.
But Alicia García-Herrero, Natixis chief Asia-Pacific economist, said the market would be disappointed by the lack of “new” fiscal spending.
“This is what happens when you feed the monster,” she said. “Every day you need to increase the amount of food or it turns against you.”
China’s prospects of hitting its full-year GDP target, which is the lowest in decades, have been called in to doubt this year as President Xi Jinping’s administration struggled to reignite confidence among consumers and businesses in the world’s second-biggest economy.
Earlier on Tuesday, the World Bank said it was maintaining its 4.8 per cent growth projection for China for 2024. The multilateral lender projects China’s GDP growth to slow next year to 4.3 per cent.
Aaditya Mattoo, World Bank chief economist for east Asia and the Pacific, said that the stimulus measures of recent weeks were “not a substitute for the deeper structural reforms needed to boost longer-term growth”.
“Given the lead time for fiscal policy implementation, most of the measures [and] bond proceeds will carry over into next year,” he said. “And even then, consumers may be reluctant to splurge because a one-time transfer would not boost longer-term incomes or address concerns about ageing, illness and unemployment.”
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