n the back of government stimulus measures, Chinese stock markets saw notable gains ahead of the week-long National Day holidays (October 1-7), with the Shanghai Composite Index rocketing from 2,700 to 3,500 points after being in the doldrums for months.
The rally began on September 24 when the State Council held a press conference where leaders from the People’s Bank of China (PBoC), the National Financial Regulatory Administration (NFRA) and the China Securities Regulatory Commission (CSRC) introduced a new economic stimulus package.
PBoC President Pan Gongsheng said that from September 27, the central bank would adjust the borrowing cost of its seven-day reverse repurchase agreements, lowering the interest rate by 20 basis points from 1.7 percent to 1.5 percent to increase liquidity.
To support the housing market, the PBoC announced interest rate cuts to mortgages from commercial banks for existing housing should be around the rate of new loans, about 0.5 percent down on average, and reduced the minimum down payment for a second home from 25 percent to 15 percent.
As for the stock market, the PBoC announced a loan facility for major shareholders of listed companies to buy back or increase their holdings of their companies. It also established the Securities, Funds and Insurance companies Swap Facility (SFISF). This allows eligible securities, funds and insurance companies to use bonds and stocks as collateral to exchange for the central bank’s high-level liquid assets, including treasury bonds and PBoC bills. The companies then can sell the PBoC assets or use them as collateral to borrow from commercial banks. The funding they get will be only used for stock market investment. The first batch of SFISF funding totals 500 billion yuan (US$70.3b), which could expand if necessary.
Two days after the press conference, the Political Bureau of the Central Committee of the Communist Party of China held a meeting to lay out the country’s economic work in the following months, emphasizing they will ensure the stability of the economy and ensure policies are enacted to meet the 2024 economic and social development goals.
The meeting proposed to issue super-long-term Treasury bonds and specific local government bonds, and to further reduce the reserve requirement ratio – the amount banks must hold in deposits with the central bank – to improve liquidity.
On real estate, the meeting said there must be adjustments in housing purchase restrictions and reductions in interest rates to address public concerns. A new model of property development is needed, it said.
Analysts said the policies went beyond expectations, as stock markets in Shenzhen and Shanghai saw a post-holiday rally on the first day of trading to exceed 1 trillion yuan (US$140.6b) in just 20 minutes on October 8.
On October 8 and 12, the State Council held two other press conferences where officials from the National Development and Reform Commission and the Ministry of Finance announced more details on policies to boost the economy, focusing on continuing to help local governments ease debt risks, issuing national bonds and local government bonds, and increasing support to key populations. Finance Minister Lan Fo’an said the government will definitely balance the economy, although revenue increases would be lower than expected.
After the rallies, Chinese stock markets have seen a slight course correction. Official data shows that China’s GDP grew by 5 percent in the first half of 2024. But in the second half, the growth in total retail sales of consumer goods did not see an obvious rise and the Producer Price Index has suffered negative growth for 20 consecutive months. The September 26 political bureau meeting stressed the need to “work hard to meet the final GDP growth objective (5 percent).”
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