China’s commitment to a more aggressive stimulus approach in the coming year, announced via state media Xinhua News Agency, propelled Chinese stocks upward on Monday. Beijing’s leadership revealed plans to implement a “moderately loose” monetary policy and a “more proactive” fiscal policy, exceeding market expectations and signaling a significant shift towards economic easing.
This announcement triggered a widespread rally in Chinese markets. Hong Kong’s Hang Seng Index (HSI), heavily weighted with Chinese companies, surged by approximately 3%. Mainland China’s benchmark CSI 300 also saw gains exceeding 1%. Prominent Chinese tech giants like Alibaba (BABA), PDD Holdings (PDD), and JD.com (JD) experienced substantial jumps of at least 9%. Even Chinese electric vehicle manufacturer XPeng (XPEV) witnessed a double-digit surge, with shares rising nearly 14%.
Goldman Sachs chief China economist Hui Shan characterized the policy shift as an “upside surprise,” anticipating “more concrete demand-side stimulus measures” early next year. Notably, Shan highlighted that the last time China employed a “moderately loose” monetary policy stance was during the 2009-2010 period.
This move comes amidst growing trade tensions with the United States and a recent antitrust investigation launched by China into US chipmaker Nvidia (NVDA). Analysts perceive the investigation as a strategic maneuver in response to the escalating geopolitical friction between the two nations.
While recent stimulus efforts in September, including interest rate cuts and liquidity injections, initially boosted the market, a subsequent lack of further significant measures in October led to a pullback. This latest announcement, however, renews optimism for a stronger economic recovery.
Burns McKinney, senior portfolio manager at NFJ Investment Group, views the combined monetary and fiscal stimulus as a positive sign, indicating policymakers’ recognition of the economic challenges. He acknowledges potential near-term volatility in Chinese equities, particularly due to ongoing trade tensions, but emphasizes the long-term investment potential, citing favorable valuations and shifting headwinds.
China’s economy, currently facing deflationary pressures from a weakened property market and subdued domestic demand, aims for an annual growth target of around 5%. The success of this goal hinges on the scale and effective implementation of future fiscal policies. Goldman Sachs emphasizes that policy execution remains crucial for stimulus effectiveness, predicting a shift towards consumption, high-tech manufacturing, and risk mitigation, rather than traditional infrastructure and property investments. President Xi Jinping and other leaders are expected to convene this week to deliberate on these economic objectives and growth targets. The market’s response underscores the significance of these policy pronouncements and their potential impact on China’s economic trajectory.
