Over the last two months China has announced a flurry of economic policies that have both excited and disappointed financial markets. This period has illustrated three significant lessons about how economic policies are made during President Xi Jinping’s third term. Firstly, it has demonstrated the continuation of top-down decision-making guided by a strategic objective. Secondly – and importantly – this does not stop the Party-State from exercising some policy flexibility when economic circumstances necessitate it. Finally, it has also potentially signalled that policymakers recognise the need for an adjusted style of economic decision-making as China becomes increasingly reliant on its domestic capital market to achieve its strategic objectives.
Policies drive market instability China’s economy is showing several signs of weakening and is projected to grow by less than the Chinese Communist Party’s (CCP) target of 5% in 2024. Property investment fell by 10.2% and foreign direct investment (FDI) by 28.2% compared to the same period in 2023, and over the past three years US$6 trillion has been lost from the value of the Chinese and Hong Kong stock exchanges. In response, on 24 September China’s central bank unveiled its biggest stimulus package since the coronavirus pandemic, and an unprecedented Politburo meeting signalled the leadership’s recognition that more economic support was needed. The markets reacted positively, making their largest gains since 2008, but this response was then halted by the National Development and Reform Commission’s (NDRC) announcement at a press conference on 8 October that, contrary to expectations, there would be no further stimulus measures.
The Ministry of Finance stabilised the markets four days later by suggesting that additional measures would be announced at a meeting of China’s National People’s Congress Standing Committee (NPCSC) held on 4–8 November. To the markets’ dismay, rather than announcing a sizeable stimulus package, the NPCSC unveiled a debt-swap programme that aimed to relieve local governments’ immediate debt-repayment pressures, causing the Hang Seng Index to fall, erasing all gains from the previous two months.
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