China’s top economic policymakers are expected to hammer out a raft of growth-stimulating policies on Tuesday, after the announcement of long-awaited stimulus measures last month sparked a fearsome stock market rally.
Beijing has struggled to boost the economy as officials aim for around 5 percent growth this year — a goal analysts say is optimistic given numerous headwinds, from a lingering housing crisis to sluggish consumption.
After months of piecemeal experiments that did little to reverse the malaise, officials unveiled a series of measures, from interest rate cuts to easing home-buying restrictions, aimed at getting money flowing again.
Hopes of this long-awaited “bazooka stimulus” lit up stock markets, sending shares in mainland China and Hong Kong up more than 20%.
And with all eyes on the opening of mainland markets after the Golden Week holiday, officials from the National Development and Reform Commission will hold a news briefing at 10am. (02:00 GMT) on Tuesday.
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President Zheng Shanjie and others will discuss developing “a package of gradual policies to steadily promote economic growth,” Beijing said.
Analysts said they hoped officials would unveil further fiscal support measures, such as trillions of yuan in bond issuance and policies to boost consumption.
But they warned that deep reforms to the financial system are needed to ease the property debt crisis and boost domestic demand if Beijing is serious about solving fundamental obstacles to growth.
“Unless China introduces structural reforms to really kick-start consumption — from unemployment benefits to real pensions — I don’t think we’ll see much change,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis. .
The market rally was in danger of becoming a “mirage,” he warned, as policymakers propped up stocks without properly addressing the underlying issues in the real economy.
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“If the measures don’t prove to be effective … it will be even worse, because it means the incentive doesn’t work either,” he said.
Interest rate cuts, cash, credit
Hong Kong’s benchmark Hang Seng closed up 1.6 percent on Monday, while mainland markets reopened on Tuesday after a rally led by technology and property companies that was interrupted by the holiday.
Many of the measures unveiled so far have targeted the flagging housing market, long a key driver of growth but now mired in a protracted debt crisis that exemplifies the fate of developers like Evergrande.
To that end, Beijing’s central bank cut interest rates on one-year loans to financial institutions, reduced the amount of cash lenders must hold and pushed for lower interest rates on existing mortgages.
Several cities — including the financial powerhouses of Shanghai, Guangzhou and Shenzhen — have also further eased restrictions on the housing market.
China’s big cities are easing home-buying rules to boost the property market
Jin Ma, head of China research at the Institute of International Finance, said the market’s reaction to the stimulus was “absolutely normal”.
However, he warned, “sustainable economic recovery and inflation require stronger demand-side fiscal stimulus.”
Source: AFP