The Chinese government continues to offer measures to spur economic growth in an attempt to bolster confidence in the economy. China today pumped a record amount of cash into the financial system to boost liquidity while also expanding support measures to aid its troubled property sector. However, the market reaction to the support measures was muted as the Shanghai Composite gave up an early advance and closed down -0.56%.
The Peoples Bank of China (PBOC) today boosted liquidity in the banking system by offering commercial lenders a net 800 billion yuan ($112 billion) of one-year loans through its medium-term lending facility. That was twice the amount analysts had expected and a record amount of cash, giving banks more money to buy government bonds issued to support infrastructure spending. Chinese authorities face the challenge of balancing monetary and fiscal stimulus to add enough liquidity to support government bond sales without triggering a slump in the yuan.
The Chinese government also boosted its support for the ailing property market, which was welcome after today’s news that China’s Nov home prices fell -0.37% m/m, the sixth consecutive month that home prices have declined. Also, China’s Nov property investment weakened to -9.4% year-to-date from -9.3% year-to-date in Oct. The government today also cut down-payment ratios for first and second homes in Beijing and Shanghai. China’s real estate market and its related industries account for about 20% of the economy.
However, the markets have been unimpressed thus far by the Chinese government’s patchwork of stimulus plans. Investors have been looking for more forceful steps after previous measures failed to accelerate the economy’s recovery or put a floor under China’s stock market. Even after today’s new steps to support the economy, Standard Chartered Bank said, “It’s too early to call it a turning point given that investor sentiment remains fragile and geopolitical tensions remain a potential source of risk.”
Investors remain wary that Chinese stock market optimism about today’s new stimulus attempts will be short-lived, as has been the case with other measures this year. Chinese equities have maintained a downward trend this year as concerns over a sluggish economy, geopolitical tensions, and the property crisis outweighed any policy optimism. The Asia Pacific unit at S&P Global Ratings said, “Injecting liquidity and trying to increase the supply on the financial side is helpful, but probably will not be enough if there is no willingness to spend or to invest. More needs to be done apparently just looking at how dire the situation is.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
