Beijing’s Promised Measures to Bolster Economy Fuel Rise in Chinese Stocks

Chinese stocks experienced a significant surge on Tuesday following Beijing’s commitment to implementing measures to strengthen the country’s struggling economy. The Hang Seng Index in Hong Kong rose by more than 3%, while China’s tech-heavy ChiNext increased by 1.8% and the Shanghai Composite Index saw a 1.81% rise in Asia’s morning trading session.

Leading Chinese property developers, Country Garden and Longfor, witnessed remarkable surges of 14.3% and 20.7% respectively, while Sunac, China Vanke, and China Overseas Land and Investment recorded gains of 12.5%, 11.02%, and 11.39% respectively.

This impressive rebound in the stock market comes after a recent decline triggered by concerns over the real estate sector’s high debt levels, which were addressed by the Chinese government in August 2020.

China’s top leaders pledged on Monday to increase policy support to stimulate domestic consumption and address the slower-than-expected post-Covid economic recovery. Official data revealed that China’s gross domestic product (GDP) for the second quarter grew by 6.3% compared to the previous year. However, this figure fell short of economists’ predicted growth of 7.3%. It also represented a slower quarter-on-quarter growth rate of 0.8% compared to the 2.2% growth recorded in the January to March period.

During the long-awaited Politburo meeting on Monday, China’s top leaders hinted at potential adjustments and optimization of property policies to address the challenges faced by the country’s “torturous” economic recovery. Weak domestic demand, operational hurdles for businesses, and a challenging external environment were cited as contributing factors.

The meeting emphasized the necessity of actively expanding domestic demand, with a particular focus on increasing residents’ income to drive economic growth. It also highlighted the importance of boosting consumption in sectors such as automobiles, electronics, home furnishing, sports, leisure, and cultural tourism.

Following the positive developments in the stock market, shares of Chinese internet giants traded in Hong Kong experienced significant gains. Alibaba saw a rise of 4.7%, while Tencent surged by nearly 4%. Meituan and Baidu also witnessed increases of 5.7% and 6.8% respectively. In the electric vehicle sector, Xpeng soared by 11%, Li Auto rose by 4.15%, and BYD recorded a 2% gain.

Xiaolin Chen, head of international at KraneShares, commented on the market response, stating that this reaffirms policymakers’ recognition of the need for further support in the domestic economy. Chen emphasized the significance of job creation to achieve the target GDP growth of 5% for this year. The statement released by the leaders addressed concerns regarding real estate, employment, and private investment, among others, providing an encouraging outlook.