Bull statues in front of screens showing the Hang Seng stock index outside Exchange Square, in Hong Kong, on Aug. 18.TYRONE SIU/Reuters
Chinese authorities announced a slew of measures Friday to address growing concerns over the state of the world’s second-largest economy.
Government data in the past two weeks has revealed poor growth and weak consumer sentiment, which, combined with an escalating crisis in the housing market, have shaken investor confidence and sent stocks and bonds tumbling.
On Friday, the China Securities Regulatory Commission said it would cut handling fees, extend trading hours and support share buybacks, among other measures. Separately, the country’s central bank intervened to stop the depreciation of the renminbi, which has sunk to its lowest level in years. Earlier this week the People’s Bank of China also cut key interest rates and injected $170-billion into the banking system to stimulate growth.
So far, however, the market has not been reassured. Foreign investors appear to be dumping Chinese stocks, while Hong Kong’s Hang Seng Index – which mostly tracks large Chinese companies – entered a bear market Friday when it dropped more than 20 per cent from a January high.
One stock dragging the index down is that of real estate giant Country Garden, which has shed billions in value, missed key bond payments and looks to be heading for default. Dozens of property companies have collapsed across China since the failure of Evergrande in 2021, then the country’s largest developer. On Thursday, Evergrande sought bankruptcy protection in the U.S. as it continues to grapple with tens of billions of dollars in debt.
Most Chinese households store their wealth in property, and fears that Evergrande’s collapse would leave people out of pocket or owning half-built apartments led to small-scale protests in several cities. Beijing refused to intervene to prop up the developer but did provide support to ensure some residential projects were completed.
Chinese consumer prices dipped into deflationary territory last month, and a real estate crisis could further shake confidence, causing people to cut back on spending just as the government is trying to promote greater domestic consumption. Most analysts now expect China to miss its goal of 5-per-cent growth for 2023, already a modest target.
In its second-quarter report, China’s central bank promised to “timely adjust and optimize real estate policies” and “play a positive role in promoting consumption, stabilizing investment and expanding domestic demand.” It dropped language about housing speculation that had become rote after the government introduced measures in recent years to deflate the property bubble – measures that massively over-leveraged developers such as Evergrande have struggled with.
But some analysts were skeptical that Beijing would blink when it comes to reforming the housing market. Robert Carnell, the Asia-Pacific head of research at ING, said this week that China was undergoing a painful transition to an economy more focused on consumer spending and less dependent on a highly leveraged property sector.
“We will continue to see weak macro data for the foreseeable future,” he added. “It is a necessary part of the adjustment and is far preferable to resurrecting the debt-fuelled property model that propelled growth previously. But we do need to lower our expectations for China’s growth.”
Shehzad Qazi, the managing director of China Beige Book, agreed, saying “popping a property bubble hurts.”
“It’s killing short-term numbers,” he said in a note, but Chinese President Xi Jinping “sees that as necessary for any hope of long-term debt sustainability, with some social stability mixed in.”
As evidence, he pointed to the lack of major stimulus measures some analysts have been predicting for months, which would likely prop up the Chinese property market but do little to address its long-term problems.
One issue likely causing far more headaches in Beijing, however, is growing youth unemployment. This week the country’s statistics bureau said it would no longer publish jobless data for 16-to-24-year-olds after it hit a record 21.3 per cent in June.
With files from Reuters.