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Welcome to the China Market Weekly Recap by Yuan Talks!
Following the initial excitement surrounding a package of stimulus measures, China’s economy and financial markets showed some promising developments this past week, with new data hinting at the ripple effects of these measures.
China’s benchmark Loan Prime Rate (LPR) was lowered by 25 basis points, with the 5-year LPR saw the largest cut on record. Following this, mortgage rates in several cities saw reductions, with the rates in Beijing hitting new lows, while Guangzhou’s rates falling below 3%.
In addition, major banks officially reduced mortgage rates on existing mortgages after the central bank governor Pan Gongsheng announced the move last month, in order to ease financial pressures on homeowners and stimulating consumption.
The People’s Bank of China conducted its first operation of the Securities, Funds and Insurance Companies Swap Facility to boost market liquidity, with 20 institutions participating. In addition, several banks began offering special loans for listed companies to support stock buybacks and shareholding increases, providing further support for the market.
A renewed sense of optimism pervaded the stock market, with margin financing on Chinese A-shares reaching a two-year high. Morgan Stanley noted a marked improvement in investor sentiment following the launch of stimulus measures and Deutsche Bank suggested that the recent market rally is more than a short-term rebound, projecting that the Hang Seng Index could rise above 33,000 points.
On the economic front, some encouraging trends emerged. For the first time this year, China’s fiscal revenue registered a year-over-year increase in September, with a notably smaller drop in land sales revenue, a critical source of local government revenue.
Following strong home sales in holiday, China’s top cities appears poised a so-called “warm winter.” In particular, Beijing’s second-hand home transactions in October is expected to reach their highest level since 2017.
In a recent report, Goldman Sachs predicted that China’s home prices may stabilize by the end of 2025 before increasing by around 2% in 2027, bringing hope for a recovery in the property sector.
Many analysts believe that China’s plan to renovate an additional 1 million units of urban village and dilapidated housing through monetized resettlement could potentially drive the sales of nearly 100 million square meters of residential properties and potentially inject 1 trillion yuan to the real estate market.
China and the European Union held talks to resolve the anti-subsidy investigation into Chinese EVs. China agreed to immediately initiate the next phase of negotiations and welcomed the EU team to visit China as soon as possible.
In response to growing scrutiny, China’s industry ministry expressed a commitment to boosting domestic auto consumption, supporting EV producers in countering external pressures, and aiding their overseas investments.
China’s steel industry, however, continues to face challenges. According to the China Iron and Steel Association, major steelmakers saw a 56% drop in profits in the first nine months of the year. Although steel prices are expected to rebound in the fourth quarter, a full recovery remains unlikely in the near term.
Given the persistent imbalance in steel demand and supply, the association pledged to step up efforts to accelerate industry mergers and restructuring as well as enhance exit mechanism of outdated capacity.
Amid the economic uncertainties, a top Chinese state think tank has suggested that the government should step up stimulus policy, including bolder interest rate cuts and issuing 2 trillion yuan in special treasury bonds to establish a market stabilization fund, underscoring the urgency for continued fiscal support to underpin growth.
Stay tuned for further updates as we track how these developments unfold and what they mean for China’s economic future.
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