Stimulus Measures and Stock Market Rally
China's 75th Anniversary: Celebrations Amid Economic Struggles
Structural Issues and Future Growth
As China celebrates the 75th anniversary of the founding of the People’s Republic, not all citizens are in a festive mood. The nation, once on a trajectory of rapid growth, now faces significant economic challenges. For many, the optimism of previous years has faded, replaced by concerns over unemployment, falling wages, and a stagnant property market.
Economic Challenges Facing the Nation
Since reopening after the COVID-19 pandemic, China’s economy has struggled to regain momentum. Graduates are finding it difficult to secure employment, white-collar professionals are facing layoffs and pay cuts, and entrepreneurs are struggling to finance their businesses. Middle-class families are also seeing their wealth dwindle as property prices continue to decline, and many of the country’s wealthy citizens are moving their money abroad.
A new term, "the garbage time of history," has emerged to describe the bleak outlook some Chinese citizens feel, likening the current period to the final minutes of a losing basketball game. Just five years ago, China’s future seemed bright, with economists predicting it would soon overtake the U.S. as the world’s largest economy. Today, the conversation has shifted to concerns that China may face a "lost decade" of stagnation similar to Japan's experience after the collapse of its housing bubble in the 1990s.
Stimulus Measures and Stock Market Rally
In response to months of grim economic data, Chinese leader Xi Jinping approved a stimulus package aimed at boosting confidence in the world's second-largest economy. Measures include cutting interest rates, reducing bank reserve requirements, and introducing cash handouts to disadvantaged citizens. The package, intended to counter falling prices and stimulate the economy, also includes subsidies for graduates struggling to find jobs.
The announcement of these measures triggered a surge in China’s stock market, with blue-chip stocks soaring more than 15% in their biggest weekly gain in nearly 16 years. Hong Kong’s Hang Seng Index also rose 13%, marking its best performance since 1998.
Billionaire investor David Tepper expressed confidence in the market, calling it a "buy everything" moment. However, economists caution that while the stock market has rallied, it may not reflect the reality of China’s broader economic situation. As Logan Wright, director of China markets research at the Rhodium Group, notes, “Stimulating the stock market doesn’t do much for the real economy in China.”
Property Market Woes
The collapse of China’s property sector, which accounts for 70% of household wealth and a quarter of the national economy, has been a major source of concern. After decades of boom, the sector has been in contraction since 2020, when the government sought to reduce developers’ debt. Home prices have continued to fall, and efforts to revive the market have been largely unsuccessful.
Guangzhou, a major metropolis, has lifted all restrictions on home purchases in an attempt to stimulate the market, while Shanghai and Shenzhen have eased rules for homebuyers. Despite these efforts, the outlook for the property market remains dim, with Wright noting that Beijing’s policies have had little impact on stabilizing the sector.
Structural Issues and Future Growth
China’s high savings rate and lack of robust social welfare and healthcare systems have hampered consumer spending. Although recent cash handouts and subsidies may boost short-term consumption, long-term growth requires a shift from an investment-led economy to one driven by domestic consumption. This would require significant fiscal reforms, including income redistribution and increased transfers to households.
While China’s government has implemented short-term fixes, it has yet to address the structural issues hindering economic growth. The property market’s decline and shrinking population present additional challenges to future growth. As China’s youth grapple with high unemployment rates and dimming job prospects, many are increasingly disillusioned with the country’s economic trajectory.
A Generational Shift
China’s younger generation, which grew up during a period of rapid economic expansion, now faces an uncertain future. With the unemployment rate for those aged 16 to 24 reaching 18.8% in August, many young people are struggling to find jobs in a market that has been hit by Xi’s crackdown on the private sector.
The sense of disillusionment among China’s youth poses a potential problem for the Communist Party, which has long relied on economic growth to legitimize its rule. As economic prospects dwindle, Xi has turned to nationalism to bolster support. However, restoring confidence in the economy remains a priority, as the Party seeks solutions to the country’s ongoing economic slowdown.
Conclusion
As China marks its 75th anniversary, the celebrations are tempered by the nation’s economic challenges. While short-term measures have sparked a stock market rally, the deeper structural issues plaguing the economy remain unresolved. The future will depend on whether China can transition to a more sustainable, consumption-driven growth model and restore confidence among its disillusioned youth.