Chinese stocks rise as Beijing projects “full confidence” in economy

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Chinese shares hit their highest level in two years on Tuesday as Beijing promised more support for the economy and investor expectations for further stimulus remained high.

The mainland blue-chip CSI 300 index opened up 10.8 percent after being closed for a week-long holiday last Tuesday. It fell back to trade 7% higher in late morning as Beijing pulled no punches before unveiling significant new fiscal stimulus.

Expectations were building among investors that Chinese officials would outline further support for the economy to complement a monetary stimulus launched in late September that sent Chinese stocks to their best week since 2008.

Hong Kong’s Hang Seng Index, which has been open for most of the past week, fell as much as 9% in the morning session after rising 11% over the past 5 days.

“Now (that) the mainland is open, people are selling Hong Kong to finance the actual buying of the (Mainland China shares),” said an Asian trader who did not want to be identified.

China’s policy rally has restored a measure of optimism to the country’s stock markets. Global financial institutions, including Goldman Sachs, Citi and HSBC, became more bullish and raised their targets for the performance of Chinese stocks.

Zheng Shanjie, chairman of the National Development and Reform Commission, China’s state economic planner, told reporters in Beijing on Tuesday that he had “full confidence” that the country would meet its official annual growth target of about 5 percent.

He pledged to prioritize consumption and expand domestic demand, as well as provide deeper support for China’s poor and students.

Zheng also said the Chinese government will continue to issue sovereign bonds with very long maturities in 2025 – a sign of more support for the economy.

He said the government would prepay about 200 billion Rmb ($28 billion) from next year’s budget for spending and investment projects. He also signaled 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.

“That’s what happens when you feed the monster,” she said. “Every day you have to increase the amount of food or it backfires on you.”

China’s prospects of meeting its full-year GDP target, which is the lowest in decades, have been thrown into doubt this year as President Xi Jinping’s administration struggled to reignite consumer and business confidence in its second-best great economy of the world.

Earlier on Tuesday, the World Bank said it was maintaining its 4.8 percent growth projection for China for 2024. The multilateral lender expects China’s GDP growth to slow next year to 4.3 percent.

Aaditya Mattoo, the World Bank’s chief economist for East Asia and the Pacific, said the stimulus measures in recent weeks “were not a substitute for the deeper structural reforms needed to boost long-term growth.”

“Given the time needed to implement fiscal policy, most measures (and) bond proceeds will carry over into next year,” he said. “And even then, consumers might be reluctant to cash in because a one-time transfer wouldn’t increase incomes in the longer term and wouldn’t address concerns about ageing, illness and unemployment.”