China dispenses $28 billion to regional administrations, reaffirming its commitment to attaining financial objectives
The nation's leading planning organization, the National Development and Reform Commission (NDRC), declared at a Tuesday press conference, leaving investors displeased as they anticipated a larger bundle of stimulus measures.
Zheng Shanjie, the commission's head, informed reporters in Beijing that they are confident in reaching the annual economic and social development objectives and tasks, as well as sustaining constant, stable, and healthy economic and social development.
In March, China set a 5% growth rate aim, but weak economic data throughout the summer had economists worried the target might not be met. The world's second-largest economy grapples with a real estate crisis, anemic consumer spending, and high youth unemployment, among other challenges.
To support local governments grappling with heavy debts, Beijing will contribute 100 billion yuan ($14 billion) from its national budget and an additional 100 billion yuan for investment projects, as per Zheng.
Economists anticipated that the month would witness additional fiscal measures totaling approximately 2 trillion yuan ($285 billion). After Xi Jinping consented to a growth plan in late September, following months of poor economic data, Chinese leader Xi Jinping finally gave approval.
"The NDRC offered a clear message today that policymakers will persist in a growth-promoting approach. However, investors were disappointed with the lack of details on new fiscal measures," Fred Neumann, HSBC's chief Asia economist, told CNN. "Fiscal stimulus is urgently required to stimulate growth on a long-term, sustainable basis. This will likely happen later in the month."
Last month's measures mainly focused on monetary policy, which involves decisions made by central banks to impact borrowing costs and control inflation. Fiscal measures, in contrast, encompass the usage of taxation or other tactics to directly impact public spending.
The absence of a dramatic announcement on Tuesday dampened stock market enthusiasm in Hong Kong and mainland China. Blue-chip stocks listed in Shanghai and Shenzhen ended 6% higher after opening 9% higher. However, Hong Kong's Hang Seng Index, which had its best two-week streak since at least 2005, declined by over 5%.
What's next?
Many economists believe more robust action is necessary to restore consumer confidence for spending once more.
Jia Kang, formerly the director of a finance ministry-affiliated think tank, proposed that Beijing should issue around 10 trillion yuan ($1.4 trillion) in long-term government bonds to fund infrastructure and public works investment. According to his perspective, this amount would be "not excessive" as Beijing had implemented similar recuperation measures in the past.
"We concur with prominent policy advisors such as Jia Kang that an over 10-trillion level or 10% of GDP could be necessary to turn the economy around, taking into account China’s own stimulus history," Citi economists wrote in a research note.
On September 24, the People's Bank of China, the central bank, lowered one of its primary interest rates and reduced banks' reserve requirements. Mortgage rate reductions and lowered downpayments for second-home buyers to support the real estate sector were announced, along with promises to support the stock market.
Additionally, government officials maintained optimism the following day by announcing relief funds for disadvantaged individuals and job subsidies for recent graduates grappling with unemployment.
Later in the week, the Communist Party's 24-member Politburo – a top decision-making body – continued the optimistic rhetoric. In contrast to convention, Xi dedicated the group's September meeting to economic matters.
Senior officials acknowledged that new challenges and problems had emerged in the economy and demanded immediate action, vowing to increase fiscal spending, halt the real estate market's decline, and improve employment opportunities for new graduates and migrant workers.
CNN's Marc Stewart contributed reporting.
Despite the announced financial support from Beijing, economists continue to advocate for more substantial fiscal stimulus to boost consumer confidence and spending. As suggested by Jia Kang, former director of a finance ministry-affiliated think tank, issuing around 10 trillion yuan in long-term government bonds for infrastructure and public works investment could be necessary to revive the economy. This proposed amount, according to Citi economists, could be "not excessive" given China's past stimulus measures.
