Investor sentiment in mainland China and Hong Kong cooled this week as authorities failed to provide more concrete details on further stimulus and growth-boosting measures Adek Berry
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The People’s Bank of China on Thursday released tens of billions of dollars of liquidity for companies to buy stocks and stepped up support for the market, as part of a series of measures by the Chinese government to revive the country’s struggling economy. .
Last month, authorities announced several stimulus measures, ranging from lower interest rates to easing restrictions on home purchases, after the country has struggled to reignite growth and get business activity back on track since the lifting of coronavirus restrictions.
The news sparked a selloff in mainland and Hong Kong stocks on renewed hopes that authorities would finally get a grip on problems that have plagued the economy for years, particularly the real estate debt crisis and tepid consumer spending.
That euphoria was dampened on Tuesday when a long-awaited press conference ended with just a promise to meet the country’s annual growth target, with no further measures or details of what had already been announced.
But the People’s Bank of China on Thursday pledged to “sound and stable development of capital markets” by opening a “swap facility” worth 500 billion yuan ($70.6 billion) that would allow companies to access cash for stock purchases. We have formulated a plan to encourage this.
The report said companies would be allowed to use stocks, bonds and other assets as collateral for “highly rated liquid assets such as government bonds and central bank notes.”
It added that the program “may be further expanded depending on the situation.”
Shanghai stocks rose more than 1% in early trading, while Hong Kong shares rose more than 2%.
The measures were announced at the same time as a raft of stimulus measures last month that triggered a wild rally that sent the market up more than 20%.
People’s Bank of China Governor Pan Gongsheng said at the time that the plan would “significantly enhance” companies’ ability to access stock purchase funds.
Last month, the Chinese government lowered interest rates on one-year loans to financial institutions, reducing the amount of cash they must hold on hand and pushing for lower interest rates on existing mortgages.
China faces multiple problems, including a long-term crisis in the real estate sector, chronically weak consumption, high youth unemployment, and rising local government debt.
Several major cities, including Shanghai, Guangzhou and Shenzhen, have also eased restrictions on home purchases to boost the housing market, which was once a major driver of growth.
Analysts say more direct state aid is needed to boost consumption and meet the government’s official national growth target of around 5% this year.
Top economic planner Zheng Shanjie said this week that the Chinese government is “fully confident” of achieving that goal.
“We also have full confidence in maintaining stable, healthy and sustainable development,” he added.
One analyst told AFP that the central bank is “doing much of the heavy lifting in the latest wave of stimulus”.
“The central bank recognizes the urgency of addressing China’s economic problems,” said Heron Lim, an economist at Moody’s Analytics.
“But the central bank’s actions are only part of the equation to boost sentiment,” he said. “What we need now is an action plan to deliver financial support.”
Traders expect the plan to be announced on Saturday, when Finance Minister Lan Foan is scheduled to hold a fiscal policy conference in Beijing.
China’s State Council said Lan will outline “countercyclical adjustment of fiscal policy to promote high-quality economic development.”
