Chinese stocks surged on Monday, following a weekend announcement by the Ministry of Finance that promised new measures to support the troubled property sector and suggested the potential for increased government borrowing. The pledge to offer financial backing and explore expanded fiscal deficit strategies helped alleviate investor concerns after weeks of turbulence in China’s markets.
The CSI 300 Index, which tracks the top 300 stocks on the Shanghai and Shenzhen stock exchanges, climbed by as much as 1.4% in early trading. This was a welcome reversal after the index had endured its worst week since late July by the close of Friday. In Hong Kong, the Hang Seng China Enterprises Index, a gauge of Chinese shares listed overseas, also saw a recovery, reversing an initial drop of 1.1% earlier in the day.
The initial market response indicates that investors are counting on further details to clarify China’s fiscal plans in the coming days. However, despite the relief provided by the ministry’s promises, some traders and economists had expressed disappointment after Saturday’s highly anticipated briefing, which lacked the specifics the market had been hoping for, including a clear headline dollar figure for new fiscal stimulus.
At the briefing on Saturday, Finance Minister Lan Fo’an and his deputies outlined a commitment to increased fiscal spending, including measures to support the property sector. However, they refrained from providing precise figures for the scale of this stimulus. According to analysts, markets had been hoping for an announcement of a substantial fiscal package, possibly in the range of 2 trillion yuan ($283 billion).
Such a large package, according to economists surveyed by Bloomberg, would have included subsidies for families with children, consumption vouchers to stimulate spending, and targeted financial support to bolster key sectors of the economy. Instead, the ministry’s more cautious approach left investors speculating about the magnitude of the eventual fiscal measures.
In particular, Finance Minister Lan suggested that local governments could issue special bonds to purchase unsold homes, signaling a focused effort to ease the housing market’s struggles. But the absence of detailed figures on sovereign bond issuance and a lack of concrete steps for immediate large-scale stimulus left some market participants unsatisfied.
China’s property sector has been a cornerstone of its economic growth for decades, contributing significantly to both GDP and employment. However, in recent years, the industry has been plagued by over-leverage, rising debts, and faltering demand, leaving developers struggling and some on the verge of collapse. Evergrande Group’s recent struggles have highlighted the vulnerabilities of the sector, with far-reaching implications for the broader economy.
This economic backdrop has pressured the government to step in, given the sector’s systemic importance. The unsold housing stock has been a particular concern. According to estimates, millions of housing units remain unsold across China, locking up significant amounts of capital and dragging down economic growth. By allowing local governments to purchase these unsold properties using special bonds, the government aims to stimulate the housing market and prevent a more extensive collapse.
While the property market accounts for a significant portion of the economy, China’s broader economic growth has also slowed, reflecting challenges in both domestic consumption and international demand for Chinese goods. This has placed additional pressure on the government to act, with some analysts calling for more aggressive fiscal policies.
The announcement on Monday provided a short-term boost to market sentiment. Morgan Stanley strategist Laura Wang noted in a client note that the commitment to fiscal deficit expansion could help stabilize market sentiment in the immediate future, particularly following the heavy volatility seen since late September.
Still, Wang and others caution that the markets are in need of more concrete details. Investors will be closely watching the government’s next steps, particularly if more significant measures, such as an adjustment to the annual budget, are introduced in the coming weeks.
The possibility of a rare budget revision has been one of the more closely watched outcomes since Saturday’s briefing. Revising China’s national budget midway through the fiscal year would signal a substantial shift in policy, one that could indicate the government’s readiness to embark on a broader fiscal expansion to revive the flagging economy.
Another key issue raised during the briefing was the debt burden of local governments. For years, local governments in China have been major drivers of infrastructure and property development projects, many of which were financed through debt. However, as the economy has slowed and the property market has weakened, these governments have found it increasingly difficult to service their obligations.
At the weekend briefing, Finance Minister Lan hinted at the possibility of measures aimed at relieving this debt burden. This could include restructuring or extending debt maturities, although specific measures were not outlined. Any meaningful efforts to reduce local government debt would likely be welcomed by markets, given the potential for these liabilities to spill over into the broader financial system.
Local governments also play a crucial role in the implementation of central government policies, particularly when it comes to infrastructure projects and urban development. Their ability to fund such projects has been constrained by growing debt levels, which has, in turn, dampened growth in key sectors of the economy.
The measures targeting the property sector are central to the government’s economic revival strategy. By allowing local governments to use special bonds to purchase unsold homes, the government aims to reduce the inventory overhang that has plagued many cities across China. This, in theory, would help stabilize property prices and restore confidence in the sector, which has been reeling from falling demand and rising developer defaults.
However, whether these efforts will be sufficient to revive the property sector remains to be seen. While the bond issuance will provide some relief, analysts caution that the underlying issues of oversupply and faltering demand must also be addressed. Moreover, the success of this policy will largely depend on how local governments implement the bond purchases and whether they have the fiscal space to take on more debt in the process.
The property sector’s woes are also a reflection of deeper structural issues within the Chinese economy. Years of rapid growth, fueled by cheap credit and heavy infrastructure investment, have left certain sectors overextended. As a result, addressing the property market’s problems may require more than just short-term financial measures — it may necessitate broader reforms to the way the sector is regulated and financed.
While the impact of the finance ministry’s announcements was most immediately felt in domestic Chinese markets, global investors are also closely watching China’s next steps. The country’s economy is a major driver of global growth, and any significant slowdown could have ripple effects across international markets.
In the short term, the renewed focus on fiscal stimulus has been met with cautious optimism, particularly among investors who have been looking for signs that Beijing is willing to take more aggressive steps to support the economy. However, the lack of immediate details has left many questioning whether the government’s efforts will be enough to stave off a prolonged slowdown.
