After a strong opening post-Golden Week holiday, with shares rising over 10%, the momentum shifted dramatically. In a volatile trading session, the Shanghai Composite Index was initially up by about 3% in early afternoon trade, while the Hang Seng Index in Hong Kong plummeted more than 7%.
Investors were eager for concrete details on the government’s economic support plans, but the announcement fell short. Zheng Shanjie, chairman of China’s National Development and Reform Commission, expressed his “full confidence” that the country would meet its economic and social goals for the year. However, he acknowledged increasing downward pressures on the economy, stating that China would issue 200 billion yuan (approximately $28 billion) for spending and investment projects by year-end.
The market’s reaction was one of disappointment. Alicia Garcia-Herrero, chief economist for the Asia Pacific region at investment bank Natixis, remarked, “The market really expected more. The correction will be even stronger if the data on the Golden Week in terms of consumption is weak.” She criticized the lack of substantial fiscal stimulus in the announcement, suggesting that the press conference should have brought more significant news.
Concerns are mounting as the Chinese government seeks to bolster confidence in the world’s second-largest economy amid fears that it may fail to achieve its 5% annual growth target. Investors have been enthusiastic about Chinese stocks following a series of measures introduced by officials, which included support for the struggling property sector, cash handouts for low-income citizens, and increased government spending.
However, economists have expressed skepticism about whether these measures are sufficient to address China’s economic challenges, pointing out that deeper reforms may be necessary for sustainable growth. The economy continues to grapple with a real estate slump, declining prices, and other pressing issues, leading to a slowdown in growth.