Chinese markets recently after Beijing unveiled a highly anticipated stimulus package, which many hoped would mark the start of a much-needed economic recovery for the world’s second-largest economy. Traders were quick to act, sending stock markets soaring across Shanghai and Hong Kong in anticipation of major government investment.
However, the measures announced this week by China’s National Development and Reform Commission (NDRC) fell far short of the trillions of yuan that many observers had predicted. Instead of a massive influx of financial aid, the package revealed was considerably more modest, focused on targeted adjustments rather than sweeping reforms. The market’s reaction was swift and severe, leading to significant drops in major indexes.
The initial excitement in China’s financial markets gave way to disappointment as the limited scope of the stimulus measures became clear. The Hong Kong Hang Seng Index plummeted, suffering its worst single-day decline in 16 years. Meanwhile, the CSI 300 Index, which tracks the largest companies listed in Shanghai and Shenzhen, closed down for the first time in 11 days. This marked a sharp reversal from the brief rally fueled by speculation that the government was preparing to unleash a more aggressive stimulus plan.
The fallout from the underwhelming package reflects deeper economic concerns plaguing China as it struggles to rebound from the effects of the COVID-19 pandemic. The country faces a mix of persistent inflation, a faltering property market, and youth unemployment rates that reached a record high of 18.8% earlier this year. The government has set an annual growth target of 5% for 2024, a figure that many analysts now believe will be difficult to achieve.
China’s current economic challenges are multifaceted. Growth has stagnated in key sectors, and the once-booming real estate industry is now a source of significant instability. Following the pandemic, China’s real estate sector began to crumble under the weight of mounting debt and unsold properties. This collapse reverberated through the wider economy, leaving many Chinese families — who had invested heavily in property — facing substantial losses.
For a large portion of China’s middle class, property had long been viewed as a safe haven for savings. The housing crisis not only decimated individual wealth but also dampened consumer confidence, leading to reduced spending across the board. The economic malaise is compounded by weak domestic demand, inflationary pressures, and declining exports, which have strained China’s post-pandemic recovery.
At the same time, the country’s youth are facing unprecedented challenges in the job market. Record-high unemployment rates among young adults have emerged as a major concern, and these issues are now converging with broader economic instability. Many university graduates are finding it difficult to secure meaningful employment, further exacerbating the country’s domestic problems.
Despite the mounting economic pressure, Chinese officials have adopted a cautious approach toward rolling out more robust stimulus measures. During a news conference on Tuesday, the NDRC emphasized that it remained “confident” China would meet its economic growth targets. President Xi Jinping echoed this sentiment in late September, asserting that China is “well prepared” to navigate the economic risks ahead. Xi’s remarks were meant to project stability and assurance amid the uncertainty.
Yet, this tempered optimism has failed to inspire confidence among investors and the general public alike. According to Keyu Jin, an associate professor at the London School of Economics and author of The New China Playbook, the Chinese government is signaling that more stimulus measures will come, but in a “measured and phased” manner. This strategy, while fiscally prudent, has left many investors frustrated by the lack of immediate relief.
Jin notes that Beijing has learned hard lessons from past crises. In 2021, the property market’s collapse exposed vulnerabilities in China’s real estate sector, leaving the government wary of overextending itself financially. For many ordinary Chinese citizens, the collapse was devastating, as property remains one of the most common means of preserving wealth. The government’s reluctance to unleash aggressive stimulus measures stems, in part, from a desire to avoid similar financial pitfalls.
While Chinese officials remain cautiously optimistic, public sentiment tells a different story. For Fu, a 24-year-old graduate student in Beijing, the market turmoil has had little impact on his daily life. “Chinese people’s money isn’t really in the stock market,” Fu explains, citing a cultural preference for savings over speculative investments. “They tend to prefer saving.”
Indeed, the stock market is not a primary investment vehicle for many ordinary Chinese citizens. For those who do invest, recent market gains have been met with enthusiasm, especially on social media platforms where some individuals expressed excitement about quick returns. But the exuberance is often fleeting.
Miao Yuqing, a 50-year-old retired professional trader, observed that many retail investors in China are driven by the prospect of making fast money, with little understanding of the stock market’s inner workings. “The market is very opaque,” Miao says, adding that in the end, “it’s only the elite making money.” This widespread perception of inequality in the financial system fuels skepticism and distrust among the general population, even as market movements garner attention.
Although the anticipated windfall of financial stimulus did not materialize, the Chinese government has introduced some measures aimed at stabilizing the economy. On September 24, Beijing announced a series of modest steps designed to stimulate growth, including interest rate cuts, easing borrowing conditions, and reducing reserve requirements for commercial banks. These moves are intended to create more liquidity in the financial system, making it easier for businesses and consumers to access credit.
In addition to monetary easing, China has signaled its intention to revitalize the private sector. A new draft law introduced in late September outlines plans to boost private enterprise, which has been struggling under regulatory crackdowns and economic uncertainty. Economists believe that these incremental steps could signal further action in the near future, though the immediate impact remains limited.
Alicia Garcia-Herrero, chief economist for the Asia Pacific at Natixis, argues that China’s economic problems require more than short-term stimulus. “What China needs is to do structural reforms,” she says, pointing to the need for increased social welfare programs such as pensions and unemployment benefits. Garcia-Herrero believes that China’s government is likely to announce additional measures to address these concerns in the coming months.
Beyond domestic challenges, China’s economic slowdown is having global repercussions. The prolonged trade war with the United States, initiated during the Trump administration, has continued under President Joe Biden, adding further strain to China’s financial outlook. Tariffs, supply chain disruptions, and geopolitical tensions have all taken a toll on trade relations between the world’s two largest economies.
Despite the ongoing rivalry, there have been recent signs of cooperation. In August, Beijing and Washington agreed to work together on financial stability, marking a rare instance of collaboration amid their broader geopolitical conflict. While this agreement is a step toward mending frayed ties, the larger issues remain unresolved, and China’s sluggish economy could undermine its standing in global markets.
As China grapples with its current economic challenges, the road to recovery is likely to be slow and uneven. While Beijing remains outwardly confident in its ability to hit its growth target of 5% for 2024, many analysts are less optimistic. Yue Su, principal economist at the Economist Intelligence Unit, predicts that China’s growth will fall short, with a more realistic forecast of 4.7% for the coming year. She points out that while the recent stimulus measures could boost economic activity, their full effect will take time to materialize.
Su also warns that the Chinese government appears hesitant to exhaust its policy options too quickly. “It is clear that the government does not want to exhaust its policy tools too quickly,” Su wrote in a recent note, suggesting that further measures may be rolled out gradually in response to changing conditions. She believes that additional support could be provided to bolster the real economy, recapitalize banks, and stabilize the property market — all of which are key to China’s long-term recovery.
