Stimulus or bust: Investors staying out of China until the spending starts
Global investors are urging China to increase spending in order to revive its struggling economy and address the deepening property crisis, as modest interest rate cuts and vague promises of support have failed to restore confidence in the market. Investors are demanding more government stimulus before considering a return, and the lack of a policy response from Beijing has raised concerns among fund managers. The wishlist of investors includes increased government spending, particularly for local governments and banks, as well as measures to address the property sector crisis and improve communication regarding private business interests.
China is considering providing cheap funding to local government financing vehicles (LGFVs) in an effort to address debt concerns and improve their cashflow amid mounting risks, according to reports, with the central bank potentially setting up an emergency liquidity tool to provide low-cost, longer-term funds. The move comes as authorities also mull plans to cut LGFV debt, including allowing provincial-level governments to raise about 1 trillion yuan through special bonds sales to repay the debt of LGFVs and other off-balance sheet issuers. The measures are part of China's efforts to address the major economic and financial risks posed by LGFV debt.
China's economy is facing a downward spiral due to a crisis in the debt-laden property sector, prompting seven city banks to reduce their growth forecasts for the country; concerns include falling into deflation, high unemployment rates, and the need for more proactive government support.
Chinese authorities have introduced new measures to boost investor confidence in the stock market by reducing trading costs, relaxing rules on share buybacks, and considering extended trading hours and a cut in stamp duty, following recent declines in both the stock and bond markets. These declines have been influenced by China's deteriorating economic outlook, including deflation, weak consumer spending on manufactured goods, rising youth unemployment, and concerns over the property market.
China's largest private real estate developer, Country Garden, is in financial trouble, missing bond payments and posting a record loss, signaling further concerns about the country's property sector as housing prices and foreclosures continue to rise, while other economic indicators, such as industrial output and retail sales, fall short of expectations; these developments are raising concerns about the overall health of China's economy and its future growth prospects.
Beijing needs to provide clarity on its economic plans and the national security crackdown in order to rebuild confidence in the future trajectory of China and address uncertainties, according to the head of a European business lobby in China.
China's property crisis raises concerns about a potential "Lehman Moment" and investors are eagerly waiting to see how Beijing will handle the mounting problems.
China's unexpected economic slowdown, driven by excessive investment in the property sector and local government spending, is leading experts to question whether a collapse is imminent, although they believe a sudden collapse is unlikely due to China's controlled financial system; however, the slowdown will have implications for global growth and emerging markets, particularly if the U.S. enters a recession next year.
China is implementing measures to boost household spending, ease property policies, increase car purchases, improve conditions for private businesses, and bolster financial markets in an effort to revive the economy's recovery and improve the business environment.
China's regulators are struggling to attract global funds to invest in the country's stocks due to a lack of strong stimulus measures to support growth, resulting in a slump in the MSCI China Index and significant outflows from the mainland market.
There are growing concerns that China's economic growth is slowing, and there are doubts about whether the Chinese government will provide significant stimulus to support its trading partners, including Australia, which heavily relies on China as its top trading partner. China's economic slowdown is attributed to various factors such as trade tensions, demographic changes, a property market slump, and the lack of cash support during COVID-19 restrictions. While some experts remain optimistic that the Chinese government will implement stimulus measures, market sentiment is becoming strained, and patience is wearing thin. The impact on Australia's economy and stock market could be severe, particularly affecting mining companies, banks, construction, tourism, education, and listed fund managers.
China has introduced new mortgage policies to boost its property market and stimulate economic growth by allowing more people to be classified as first-time homebuyers and receive lower mortgage rates.
China's hybrid economic model, which combines state planning with market forces, is facing challenges as the country struggles with weak economic indicators, including high youth unemployment and falling prices, and the property market experiences financial distress due to government interventions and market dynamics; policymakers must implement short-term measures to boost market confidence, such as managing property-sector defaults and easing housing investment restrictions, while also undertaking long-term structural reforms to address moral hazards, promote fiscal responsibility, and protect private businesses and foreign investors.
China needs to fully utilize policy space to bolster economic growth and market expectations by making significant adjustments in fiscal and monetary policies, according to a senior economist and political adviser. The economist emphasizes the importance of sending strong signals to the market and considers options such as interest rate cuts, increased deficit-to-GDP ratio, and infrastructural improvements to address economic challenges caused by global demand stagnation and tightened US monetary measures.
China's property developers facing financial distress raises concerns about a debt crisis, potentially leading to a broader financial crisis, according to analyst Charlene Chu.
Investors are becoming increasingly concerned about the state of China's economy as informal gauges, such as PMI surveys and soft surveys, indicate a deep-seated confidence problem and a potential miss of the country's 5% growth target this year, leading to a retreat from global assets exposed to the slowdown.
Chinese officials have implemented aggressive measures to address the lack of confidence in the struggling economy, but analysts believe that more stimulus is needed for a sustained market rally and to stabilize the property sector.
China has announced measures to support the market, including reducing stamp duty on stock trading and approving the launch of retail funds, but the response from investors has been muted.
China is facing increasing financial stress as a property giant seeks to avoid default and a state-run bad debt manager experiences a bond slump, contributing to concerns about the country's economy.
China's largest banks are preparing to cut interest rates on existing mortgages and deposits in an effort to stimulate consumer spending and support economic growth; the move is part of the government's targeted measures to alleviate pressure on lenders' profit margins and encourage investment in the stock market.
China's property crisis, led by embattled property giants like Evergrande, is causing devastating consequences for small businesses and suppliers who are owed large sums of money, putting both market confidence and debt repayments at risk. The crisis has affected the entire industry and could worsen if immediate actions are not taken to prevent contagion and spillover fears. The Chinese government is urged to abandon restrictive measures on real estate credit, carry out bankruptcy proceedings for developers with capital-outflow problems, and stop intervening in the market to stabilize home prices. The outlook for Chinese developers is deteriorating, particularly for distressed developers, while state-owned developers have a stable outlook. The Chinese housing market is facing a severe crisis that is worse than Japan's market in the early 1990s, posing challenges in filling the gap in spending left by the collapsing housing market.
China's troubled real estate company Country Garden plans to raise funds to avoid default and repay its loans, amid concerns that its liquidity crisis could have a wider impact on China's economy.
China's "shadow banking" sector is facing a crisis as the government struggles to maintain economic growth, with concerns about the solvency of trust companies like Zhongrong International Trust Co.; however, a new analysis suggests that the government's ability to use fiscal stimulus may be more limited than many believe.
China's economic slowdown is being caused by a property market downturn, softening demand for exports, and low household spending, which poses risks to financial stability and could lead to deflation and deeper debt problems. Economists are uncertain if the government's current measures, like interest rate cuts, will be enough to boost consumption and meet growth targets. Structural reforms and measures to increase household consumption are needed to address the imbalance in the economy.
China is planning to relax home-purchase restrictions and implement new measures to address the debt crisis in its property sector, which accounts for a quarter of its economy, in an effort to boost consumer demand.
The slowdown in China's property market continues despite government measures to revive the economy, with analysts warning that the sentiment among many Chinese is too weak for these moves to be effective.
The authorities in Beijing and Shanghai are implementing measures to ease mortgage lending rules in an effort to stimulate a slowing housing market, including allowing first-home buyers to enjoy preferential mortgage rates regardless of their previous credit records. This move is expected to drive home sales in the short term, but the long-term impact is uncertain due to low consumer confidence in the face of economic uncertainty.
China's recent stimulus measures to boost its economy, including reducing down payments for homebuyers and lower rates on mortgages, are impressing the markets and may dictate the direction of the commodity market.
Chinese stocks surged as the government implemented additional measures to support the property sector, signaling a determination to boost the economy by addressing issues in the struggling housing market.
Global shares rise on growing expectations that the Federal Reserve will not raise interest rates further and hopes for policy stimulus in China, while investors await key readings on U.S. services and Chinese trade and inflation later in the week.
China's relief measures to support the property sector have spurred a home-buying spree in Beijing and Shanghai, with transaction volumes in both cities increasing significantly, indicating robust housing demand; however, concerns persist that this demand may not be sustained due to other restrictions and a faltering growth outlook.
China's economic slowdown is posing a significant challenge to President Xi Jinping's agenda, forcing him to make difficult choices and potentially relinquish some control over the economy. The slump in housing sales and the crackdown on private capital are among the factors contributing to the economic setbacks, prompting calls for change and a reevaluation of economic policies under Xi's highly centralized leadership. However, Xi seems reluctant to make major changes to his strategy, opting for a hands-off approach and avoiding a big rescue plan for distressed developers and local governments. The central government's control over taxes and the need to revamp the fiscal system further complicate the situation. Restoring government finances while reassuring private investors is a daunting task that requires strong leadership and potentially contentious policy changes. The upcoming Communist Party meetings will shed light on how Xi plans to restore confidence in his economic agenda, but some economists and former officials warn that time may be running out for China to embrace necessary reforms.
China is considering further easing measures in the property market and increasing fiscal support for infrastructure investment to boost economic growth in the fourth quarter, as sluggish demand remains a challenge.
China's measures to support the property sector are lowering monthly mortgage payments for homeowners but also reducing interest earnings on bank deposits, highlighting the challenge of promoting consumer spending in a weak economic climate.
Chinese property stocks and Japanese government bonds set the tone for global markets as the Hang Seng property index dropped to a fresh September low before rebounding on news that Country Garden won creditor support to delay onshore bond payments, while the Bank of Japan's comments about potential stimulus exit in 2023 pushed the local bond market, and the week ahead is marked by important policy meetings by the Bank of England, the Federal Reserve, and the ECB.
China's economy is facing challenges due to its real estate crisis and high levels of mortgage debt, but the government is hesitant to provide fiscal stimulus or redistribute wealth, instead aiming to rely on lending to avoid a potential recession. Banks have cut interest rates and reserve requirements, but it is unlikely to stimulate borrowing. However, economists predict that policymakers will intensify efforts in the coming months, such as changing the definition of first-time home buyers and implementing property easing measures, to address the economic downturn.
A retreat of funds from Chinese stocks and bonds is diminishing China's global market influence and accelerating its decoupling from the rest of the world, due to economic concerns, tensions with the West, and a property market crisis.
Signs of improvement in China's economy, such as improving credit demand and easing deflationary pressures, may not be enough to stabilize the economy due to bigger concerns of decreasing affordability, tight wages, and rising costs that have not been addressed. A comprehensive policy revamp may be necessary for China's economy to recover.
China's credit is expanding rapidly, with total social financing increasing by over 3 trillion yuan in August, mainly driven by government financing, indicating positive signs of economic stabilization and recovery from the slump in the second quarter. Additionally, recent policy measures, particularly in fiscal and property sectors, are expected to further stimulate the economy.
China will expedite the implementation of additional policies to solidify its economic recovery, according to state media, in an effort to address the challenges posed by the uncertain property sector and maintain the upward momentum of the economy.
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