China Stocks Lack Direction Amid Worries of Escalating Government Debt and Weak Earnings Growth

Li Chen
23 Jul, 2024
Mumbai

Stocks in Shanghai and Hong Kong retained a downward bias for the second day in a row amid a lack of catalysts. 

The Hang Seng index declined 0.2%, and the CSI 300 index, tracking the largest mainland stocks, fell 1% after the lack of major economic reform announcements following the Communist Party's Third Plenum last week. 

China's Politburo is set to meet later in the month, and investors are hoping for more concrete market-supportive measures after the high-level meeting of ministers. 

During the Third Plenum, where dissent or debate on policies is rarely entertained, most participants voiced strong support for meeting the annual economic growth target of 5% and also supported additional measures. 

China's government is likely to meet its growth target by surpassing its budget deficit of 5.8% in 2023 and reaching as high as 7%. 

China's fiscal deficit has averaged 6.4% since 2020, and the annual deficit is likely to grow at a faster pace in 2024 and 2025. 

On Monday, the People's Bank of China unexpectedly lowered its key short-term lending rates, and investors are hoping that the central bank is likely to lower its reserve ratio requirement for banks to increase financial liquidity. 

Despite the recent slowdown in spending, China's debt-to-GDP ratio rose close to 300%. 

China's total outstanding non-financial debt as a percentage of gross domestic product increased 13.5 percentage points from a year ago to 287.8% at the end of 2023, according to the National Institution for Finance and Development. 

In the first half of 2024, the government's debt increased at least by another six percentage points, according to an estimate by Ticker.com. 

 

China Stock Movers 

The Hang Seng index decreased 0.2% to 17,609.06, and the CSI 300 index dropped 1% to 3,478.06. 

BYD declined 3.5% to HK $237.40 after a Hong Kong Stock Exchange filing showed that the U.S.-based Berkshire Hathaway sold 1.4 million shares, lowering its stake to 4.95%. 

BYD Electronic International decreased 3.6% to HK $32.50. 

Bank stocks were in focus amid expectations that the People's Bank of China is likely to lower the reserve ratio requirement to facilitate more lending to the industrial economy. 

ICBC increased 2.2% to HK $4.37, Orient Overseas gained 0.7% to $108.60, and Bank of China advanced 1.1% to HK $3.46.