China Prepares to Raise Debt Limit Ahead of Possible Fiscal Measures

Li Chen
16 Oct, 2024
Hong Kong

Stocks in Hong Kong and mainland China diverged as investors debated future policy measures following the recent economic reports. 

The Hang Seng index rebounded 0.9% after falling 4.4% in the previous two sessions, and the CSI index decreased 0.3%. 

Market sentiment remained weak after policymakers failed to follow through again with specific measures, following the top politicians promising "whatever it takes" measures to revive consumer spending. 

In a familiar pattern witnessed over the last four years, Chinese politicians make big announcements that are not always followed by specific measures to support the property market and revive consumer sentiment. 

Foreign investors are increasingly skeptical about the Chinese leadership's commitment to supporting the annual economic growth target of 5%. 

Moreover, investors are dialing down annual growth expectations for the current year to below 5% and to close to 4% in 2025 as the government struggles to address structural issues amid high and rising government debt. 

Despite the bold and strong rhetoric from China's politburo, the world's second-largest economy is steadily drifting to a slower annual economic growth rate nearing 2% over the next three years. 

Persistent decline in property market valuations, elevated youth unemployment, and steady outflow of foreign investors are overshadowing China's success in exporting renewable energy products, electric vehicles, and consumer electronics. 

Investors looked forward to comments from the housing secretary on Thursday and held out for measures to arrest the four-year property market malaise. 

China's policymakers are also considering to raise debt by as much as 4 trillion yen that will facilitate exchanging local government debt and support the purchase of residential properties.

China's central government and local government debt is estimated to surpass at least 120% of gross domestic product, a sharp rise over the last five years.

 

China Stock Movers 

The Hang Seng index increased 0.9% to 20,501.77, and the mainland-focused CSI 300 index fell 0.3% to 3,846.57. 

Alibaba Group increased 0.5% to HK $100.40, Tencent Holding added 2% to HK $425.40, and JD.com fell 2.2% to HK $156.90. 

Residential property developers rebounded ahead of comments from the housing secretary on Thursday.

Longfor Group rebounded 9.2% to HK $13.98, China Resources Land gained 5% to HK $27.40, and China Vanke increased 14.6% to HK $7.66. 

BYD declined 0.8% to HK $273.40, Li Auto added 0.3% to HK $98.85, and Xpeng fell 1.4% to HK $43.85. 

Qiniu Limited plunged as much as 50% in its Hong Kong debut after the cloud services provider priced its initial public offering at HK $1.38 per share. 

Zhonghang Shangda Superalloys soared more than 10-fold in Shenzhen trading after the company priced its initial public offering at 6.88 yuan per share.