China: ready to jumpstart its economy

Zero-COVID: a costly strategy

Time for “whatever it takes”

While Beijing appeared to have adopted a more accommodative tone on economic policy in November 2021, the stimulus measures that followed were unconvincing and inconsistent with the statements of support from policymakers. However, given the lockdown’s impact on the economy and the uncertainty caused by the war in Ukraine, the Chinese government had no choice but to take more aggressive action.

The People’s Bank of China has lowered its benchmark mortgage rate twice since mid-May. This is likely the first of a series of measures designed to revive the country’s property market. Party officials have also reiterated their support for the country’s tech sector in recent comments, aiming to reassure investors by signalling that the worst of the regulatory crackdown is over.

Turning the page on pessimism

Stabilising the economy will undoubtedly be the government’s priority for the rest of the year. As we saw in March 2020, stock markets tend to rally as soon as investors are convinced of the generosity of central bankers to steer clear of a crisis, regardless of the economic outlook. The state of China’s economy has deteriorated to such an extent that large-scale government intervention now seems inevitable. Somewhat counterintuitively, the economy has become so fragile that it could be good for stock market performance, since economic stability has replaced regulatory crackdown as the new priority.  

Meanwhile, the prospect of economic stimulus from Beijing and the easing of lockdown measures appear to have drawn some investors back to Chinese equities. The domestic stock market, as well as Chinese tech stocks, have started to outperform in recent weeks after some choppy quarters. This could be a sign that the pessimism that had dominated investor sentiment has finally passed its peak.

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