Hoping to improve stock market sentiment, Chinese authorities have unveiled a series of new measures – including a liquidity injection into the banking sector, which has already shown results with a short-term boost to the Chinese stock markets on Wednesday.
Other measures, including a call to state-owned enterprises (SOEs) to boost their listed shares, will be less immediate in their effects.
The People’s Bank of China (PBoC) on Wednesday announced its plan to lower the reserve requirement ratio (RRR) for lenders by 50 basis points from February 5. The move will allow Chinese banks to offer one trillion yuan (US$140 billion) more loans to targeted companies, such as high-quality property developers and high technology firms.
PBoC governor Pan Gongsheng said the central bank will establish a credit market department this year, focused on supporting five priorities: technology finance, green finance, inclusive finance, pension finance and digital finance.
The Hang Seng Index increased 545 points, or 3.56%, to close at 15,899 on Wednesday. The Shanghai Composite Index gained 1.8% to 2,820 while the Shenzhen Component Index ended up 1% to 8,682.
After falling for weeks this year, Hong Kong’s stock markets rebounded on Tuesday as Bloomberg reported that Chinese authorities are considering a rescue package backed by offshore money to boost market sentiment. The report said Beijing may mobilize about 2 trillion yuan through offshore entities to support beaten-down Chinese stocks.
‘Sense of gain’
Prior to the two-day gains on Tuesday and Wednesday, the Hang Seng Index had lost 33% over the past one year while the Shanghai Composite Index had fallen 16%.
”During this period of time, the capital market has been weakening and volatility has increased. Many investors are deeply worried and have put forward opinions and suggestions,” Wang Jianjun, vice chairman of the China Securities Regulatory Commission (CSRC), said Wednesday.
“We listened to them carefully and empathized with them,” he said. “We know very well that only when the majority of investors have a real ‘sense of gain’ can the stable and healthy development of the capital market have a solid foundation.”
He said the CSRC has a responsibility to ensure sound protection of investor interests as stock markets have become an important channel for people’s asset allocation.
He said the CSRC will strive to improve the quality of listed companies by improving quality evaluation standards further, by placing greater emphasis on investment return requirements and by vigorously encouraging listed companies to bring improved returns for investors through buybacks and increased dividends.
CEOs must focus on share prices
Xie Xiaobing, head of the State-owned Assets Supervision and Administration Commission (SASAC)’s property rights administration bureau, said the government will guide chiefs of state-owned enterprises (SOEs) to pay more attention to listed units’ market performance.
Xie said chiefs of SOEs will be urged to convey confidence to investors through market-oriented means such as increasing holdings and share repurchases promptly, stabilizing expectations and increasing cash dividends to give investors better returns.
Xie said chiefs of SOEs will be urged to convey confidence to investors through market-oriented means such as increasing holdings and share repurchases promptly, stabilizing expectations and increasing cash dividends to give investors better returns.
Zhang Yidong, global chief investment strategist at Industrial Securities, said investors should pay attention to whether any cash-rich SOEs will try to increase their valuations by entering the high-technology sector through mergers and acquisitions.
Property demands
Apart from stimulating the stock markets, China also wants to boost its property markets. Some local governments unveiled their supportive measures on Wednesday.
The Chongqing government said homebuyers are now only required to pay property tax, or stamp duty, for 70% of the transaction price, instead of the full value. It said property tax rates for luxury apartments or houses have been lowered from 1-1.2% to 0.5%. Such tax only is applied to properties larger than 180 square meters.
“We expect property-sector challenges to persist, leading to spillovers for domestic investment and consumption,” Jeremy Zook, lead analyst for China, Fitch Ratings, said in Fitch’s Credit Outlook APAC Conference on Wednesday.
“Policy support will play a critical role in offsetting weak growth momentum in our baseline, but downside risks persist,” he said. “We forecast GDP growth in mainland China to slow to 4.6% in 2024 from 5.2% last year, as policymakers in China are likely to face another difficult year of navigating challenges from subdued domestic and external demand.
“In recent months, rigid demand from new homebuyers and those who want to improve their living places has remained weak. Cutting mortgages for first-time homebuyers will become an obvious choice for policy makers in 2024,” said Li Yujia, chief researcher at the Guangdong Planning Institute’s residential policy research center.
As the PBoC had lowered deposit rates three times last year but only slashed the five-year loan-prime-rate (LPR) by 10 basis points, there is a lot of room for mortgage rate cuts this year, Li said.
Several unnamed bankers told the Cailian Press, an online financial news website owned by the Shanghai United Media Group, that they won’t expect lenders to significantly boost their mortgage loans this year due to a weak demand from homebuyers.
At the end of September 2023, the outstanding amount of mortgage loans in China fell 1.2% year-on-year to 38.42 trillion yuan, the PBoC said last November.
According to the China Index Academy, total sales of the top 100 property developers in the country fell 17.3% to 6.28 trillion yuan in 2023 from a year ago. In December, the year-on-year decline of the figure reached 35.9%.
Read: China mulls market rescue as tears of regret flow
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