China's Stimulus

China's NDRC Stimulus: Market Reactions and Future Implications

On October 8, 2024, China’s National Development and Reform Commission (NDRC) held a much-anticipated briefing, outlining further stimulus efforts to reignite growth in the world's second-largest economy. Despite investor hopes for a massive fiscal package, the announcements were more modest than expected, leaving global markets mixed in their reactions.

The Stimulus Plan:

The NDRC announced it would front-load about 200 billion yuan ($27.5 billion) in infrastructure spending from 2025 to 2024. This modest injection disappointed some market participants, as analysts had been forecasting more aggressive fiscal measures, particularly given the ongoing struggles in China’s real estate market and overall economic slowdown. The lack of fresh, major initiatives left many questioning whether this stimulus would be enough to achieve the country's growth targets.

Immediate Market Reactions:

Initially, Chinese stock markets responded positively, with a sharp rally in early trading. The Shanghai Composite Index jumped by over 10%, reflecting optimism that China’s leadership was addressing the economic slowdown. However, as the details of the stimulus were digested, the rally quickly lost momentum, closing the day up only 4.8%. Investors were underwhelmed by the lack of bold, new measures, and Chinese markets remained volatile in the following days.

European markets reacted more favorably, increasing in anticipation that China’s efforts to stimulate growth could spill over into global demand. However, U.S. markets remained cautious as questions lingered over whether China’s approach would be enough to counteract rising global recession risks.

Long-Term Implications

Despite the underwhelming news of no new major stimulus plans, the Chinese central government seems adamant about its investment plans for the future. By the end of October, the central government will release a 100 billion yuan investment plan. The Chinese government has many levers to pull, and these plans could help push institutional investors to flow into Chinese stocks (which are currently mostly retail investors). 

Conclusion

Zhang Jun, chief economist at China Galaxy Securities, compared the stock market's current behavior to that of a traditional Chinese dragon, which doesn’t rise in a straight line but instead moves up and down, gathering strength before climbing. His metaphor is apt: China’s stock market will likely remain volatile in the short term as investors await more concrete measures from Beijing. A special news conference scheduled for October 12 can clear up some uncertainty.

Until then, global investors will continue to closely monitor Beijing’s every move, with particular attention on the upcoming announcements from the Ministry of Finance.