China's economic woes give its markets a week to forget and its public little reason for optimism

BEIJING A wave of optimism swept Chinese markets recently when Beijing announced a stimulus plan that many hoped would pave the way for a wave of investment to help fuel the recovery of the world's second-largest economy.

Traders rushed to buy Chinese stocks, sending major indexes in Shanghai and Hong Kong soaring.

But the measures announced this week by Beijing's economic planning agency proved disappointing: the trillions of yuan that observers had hoped would be revealed never materialized. Investors were disappointed, to say the least: Hong Kong's Hang Seng Index suffered its worst daily decline in 16 years and Shanghai's CSI 300 closed for the first time in 11 days.

This slowdown is part of a gloomy economic context for China, which is still struggling to recover from the Covid-19 pandemic and is prey to inflation and a sluggish real estate market. This year, youth unemployment reached a record high of 18.8%. Beijing could even miss its annual growth target of 5%, a figure it often exceeded before the pandemic.

Beijing said in a news conference Tuesday that it was confident it would achieve its economic goals, and that message was repeated by Chinese President Xi Jinping, who declared his goal of turning around its flagging economy. Late last month, he described China as well prepared to overcome potential dangers to his country's prosperity.

But while Chinese officials project confidence, the country's markets and public opinion appear less convinced.

Beijing is signaling to the market that there will be more stimulus measures to come, but they will be measured and gradual, said Keyu Jin, an associate professor at the London School of Economics and author of The New China Playbook.

The Communist Party has good reason to approach the situation with caution. In 2021, the collapse of China's real estate sector, just as the country began to lift its pandemic-related restrictions, sent shockwaves through the economy. For many Chinese, real estate is where they park their savings, and the wipeout has been brutal for ordinary home buyers.

China's economic slowdown comes at a time when, diplomatically and militarily, it finds itself locked in a fierce rivalry with the United States and its allies, and when the trade war that began with the Trump administration has persisted. than under President Joe Biden. Its broader financial lethargy and this week's market turmoil will hardly go down well with Beijing.

But what do this week's events mean for ordinary Chinese citizens? For Fu, a 24-year-old graduate student in Beijing, this month's paroxysms don't change much on the ground. The Chinese people's money is not really in the stock market. They tend to prefer saving, said Beijing-based Fu, who declined to give his first name for fear of reprisals for criticizing government policy.

Some of those interested in the stock market have pointed to rising indices in recent weeks, with Chinese social media users reacting enthusiastically. Even so, they just want to rush in and make money quickly, said Miao Yuqing, a 50-year-old retired professional trader in Beijing.

Most of them didn't even understand the market, Miao added, saying that ultimately the market is very opaque and ultimately only the elite make money.

The series of measures announced on September 24, including rate cuts, making borrowing easier and freeing commercial banks from the obligation to hold large reserves, will far more likely affect ordinary citizens. China also announced a new bill on Friday aimed at reviving its private sector.

Economists say Beijing has even more stimulus at its disposal.

What China needs is to implement structural reforms, said Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis, pointing to increases in pensions and unemployment benefits. I think they will announce something in this regard.

Beyond domestic stimulus measures, there are external signs that China's economy is in trouble. In August, Beijing made an agreement with Washington to cooperate on future financial stability. This is a far cry from the long-standing geopolitical rivalry in which the world's economic superpowers remain locked.

As for what happens next, Zheng Shanjie, chairman of China's National Development and Reform Commission, said on Tuesday that China is fully confident in achieving its 5 percent growth target for the entire country. year.

This target might be a little optimistic for some analysts. Yue Su, senior economist at the Economist Intelligence Unit, said her team maintained an annual forecast of 4.7% for 2024 because it will take time for the aid injection to translate into strong economic activity.

It is clear that the government does not want to exhaust its policy tools too quickly, Su said in a note, adding that the government could announce more support to stimulate the real economy, recapitalize banks and stabilize the real estate market.