Weak economic data raises investor concerns over China’s ability to hit 5% growth this year

Several missed economic data forecasts have raised concerns among experts and investors concerning China’s ability to hit the projected 5% annual growth. Vasu Menon, the managing director for investment strategy at OCBC in Singapore, said finance minister Lan Fo’an’s press conference lacked numerical details although it was “strong on determination.”

September’s upcoming data is expected to show more long-term structural slowdown of the world’s second-largest economy. Menon claimed “some investors” were disappointed since the anticipated fiscal stimulus details expected to keep the stock market rally never came through.

The Politburo, Communist Party’s top leaders, meeting in September had sparked intense speculation in global financial markets after signaling a sense of urgency about the economy.

Beijing’s ‘whatever it takes’ moment leaves investors in more doubt

Finance Minister Lan told Saturday’s press conference that China planned to “significantly increase” debt issuance to revive its slowing economy. He added that the government was tackling the declining economy using “counter-cyclical measures” although the size of the fiscal stimulus remains unclear. 

Investors were left guessing on the size of Beijing’s overall stimulus package, a vital detail in determining the longevity of the recent rally in China’s stock market. Chinese stocks (CSI300) surged 25% to reach two-year highs days after the Politburo meeting. 

Lan emphasized Beijing’s focus on helping local governments handle their debt issues, offering subsidies to low-income families, revamping the property market, and boosting state banks’ capital, among other measures.

His omission of definite dollar figures is likely to prolong investors’ uncertainty before the next meeting when he can present a clearer policy roadmap. The date of the next meeting has yet to be announced. 

Global commodity markets for iron ore, industrial metals, and oil remained volatile on hopes that the stimulus would revive slowing Chinese demand. While the stimulus measures raised market sentiments, Beijing analysts need to decisively address more deeply-rooted structural issues like boosting consumption. Still, much of China’s fiscal stimulus will go into investment.

Experts say that China needs additional policies to resolve debt

Zhiwei Zhang, the president and chief economist at Pinpoint Asset Management, said China’s policies were heading in the right direction. He added that the impact of policies on the macro outlook need more details to be evaluated effectively. 

Liao Min, vice president of finance, disclosed that the ministry would allow local governments to use special bonds for land purchases. He added that the ministry will allow affordable housing subsidies to be applied to existing housing inventory instead of to new constructions only.

Although Min did not specify figures, he pointed out that authorities were considering real-estate tax reductions while noting that multiple policies are required to support real estate.

Ting Lu, the chief China economist at Nomura, cautioned that the use of stimulus funds is just as important as the amount provided. All attention is now on the release of the third quarter’s GDP report by the National Bureau of Statistics on Oct. 18. 

Bruce Pang, the chief economist and head of research for Greater China at JLL, said he is waiting for parliamentary meetings to share more details later in the month. He added that preparing for unexpected shocks will be reasonable and practical.