Chinese stocks, which had rallied earlier in the session, reversed course sharply after a joint ministry briefing on property support measures left traders underwhelmed. Market participants had been hoping for more aggressive action from Beijing, but the actual announcements fell short of these high expectations.
The CSI 300 Index, which tracks some of the largest companies listed in Shanghai and Shenzhen, initially surged by as much as 1.3% during the day’s trading. However, as the briefing progressed, investor enthusiasm waned, and the index slipped into negative territory. Similarly, a Bloomberg Intelligence gauge tracking Chinese developer shares saw a significant decline, extending its losses to 7.3% by the end of the day. The Hang Seng China Enterprises Index, which reflects the performance of Chinese companies listed in Hong Kong, also trimmed its advance to just 1.1%, having gained more earlier.
The disappointing reaction in the markets can largely be attributed to the high expectations that had been building ahead of Thursday’s briefing. Investors had been eagerly awaiting further stimulus measures to prop up China’s struggling property sector, a vital component of the country’s economy. Hopes were especially high after a newspaper run by China’s Ministry of Housing and Urban-Rural Development hinted that Beijing was ready to “hit a heavy punch combo” to support the market, sparking speculation of substantial policy interventions.
In the briefing, Housing Minister Ni Hong announced that China would expand its program to support “white list” projects, raising the total funding to 4 trillion yuan ($562 billion) from the current 2.23 trillion yuan already in circulation. These projects, which focus on stabilizing key property developments, are designed to ensure that essential housing projects are completed, especially those stalled by liquidity shortages.
Despite this significant financial commitment, the market’s response was tepid. Traders quickly realized that the expansion of the “white list” projects was not the broad-based, forceful intervention many had been expecting. Moreover, much of the announced funding had already been deployed, reducing the immediate impact of the news. The market’s disappointment was further amplified by the absence of additional measures aimed at addressing the underlying structural issues plaguing the property sector, such as oversupply and weak demand.
The struggles of China’s real estate sector have been well-documented over the past two years. Once a key driver of the country’s economic growth, the sector has been mired in a liquidity crisis that has seen major developers default on their debt obligations, causing widespread distress among homeowners and investors alike.
In 2020, Beijing implemented its “three red lines” policy aimed at reducing leverage in the property sector. While the policy succeeded in curbing excessive borrowing, it also exacerbated the liquidity crunch, pushing several developers, including Evergrande and Kaisa, to the brink of collapse. This has left many property projects unfinished, with millions of homebuyers left in limbo.
The crisis in the property sector has had ripple effects across the broader economy. With real estate accounting for about a quarter of China’s GDP, the slowdown in the sector has dragged down growth, dented consumer confidence, and weighed on local government finances, which rely heavily on land sales for revenue.
Despite a series of piecemeal stimulus measures in recent months, including cuts to mortgage rates and the easing of home purchase restrictions in some cities, the sector has struggled to regain its footing. Investor sentiment remains fragile, with concerns over weak demand, high inventory levels, and the continued financial health of developers weighing heavily on the market.
Thursday’s briefing was seen as a critical moment for Chinese equities, which have experienced wild swings in recent weeks as investors grapple with uncertainty over the outlook for the economy and the effectiveness of the government’s stimulus measures. While some had hoped that the property sector would receive a more comprehensive rescue package, the lack of new, game-changing measures left many disappointed.
“Investors had been pinning their hopes on today’s presser as a catalyst to reignite the rally, but instead we got more of the same,” said a Shanghai-based equity analyst. “The expansion of the ‘white list’ program is certainly helpful, but it’s not enough to fundamentally change the trajectory of the property market.”
Indeed, market participants have grown increasingly cautious as they assess whether the various stimulus measures introduced in recent months will be sufficient to stabilize the economy. Earlier in the week, the onshore benchmark index came perilously close to entering a technical correction, defined as a decline of 10% or more from its recent peak.
“Equity markets are really on a knife’s edge right now,” the analyst added. “There’s a lot of nervousness out there, and unless we get a clearer sign that the government is willing to step in with more aggressive action, I think we’re going to continue to see this kind of volatility.”
Adding to the market’s concerns is a slate of economic data due for release on Friday, which is expected to show that China’s economy grew by just 4.5% in the third quarter compared to a year ago. While this would mark an improvement from the 3.2% growth recorded in the second quarter, it would still represent the slowest pace of expansion since March 2023, highlighting the continued challenges facing the world’s second-largest economy.
The slower-than-expected growth underscores the difficulties China faces in reviving its economy amid weakening global demand, domestic policy constraints, and the lingering effects of the property downturn. Export growth has slowed as the global economy grapples with rising interest rates and inflation, while domestic consumption has yet to fully recover from the impact of the COVID-19 pandemic.
Additionally, local governments, which have traditionally been a key driver of infrastructure investment, are facing mounting fiscal pressures as land sales—their primary source of revenue—have plummeted alongside the property sector’s struggles. This has further constrained Beijing’s ability to implement large-scale fiscal stimulus, leaving policymakers with limited tools to boost growth.
Looking ahead, China’s policymakers face a delicate balancing act as they seek to stabilize the property sector without exacerbating the country’s already high levels of debt. While the government has demonstrated a willingness to intervene in the market, as evidenced by the expansion of the “white list” program, there are limits to how far Beijing can go without risking financial instability.
One potential avenue for further support could come in the form of targeted measures aimed at boosting demand for housing. These could include more aggressive cuts to mortgage rates, as well as further easing of home purchase restrictions in lower-tier cities, where oversupply is particularly acute. Additionally, the government may look to ramp up social housing initiatives in an effort to address affordability concerns while providing a boost to construction activity.
However, any such measures would need to be carefully calibrated to avoid reigniting speculative activity in the property market, which could lead to a repeat of the boom-and-bust cycles that have plagued the sector in recent years.
China’s leadership will need to focus on long-term structural reforms aimed at reducing the economy’s reliance on the property sector and shifting towards more sustainable sources of growth, such as high-tech manufacturing, green energy, and services. This will require significant investment in education, research and development, and infrastructure, as well as continued efforts to improve the business environment and reduce regulatory burdens.
Thursday’s disappointing market reaction to the joint ministry briefing highlights the challenges facing China’s economy as it seeks to navigate a complex and uncertain global environment. While the expansion of the “white list” program is a positive step, it falls short of the bold action that many had hoped for, leaving investors questioning whether Beijing’s current approach will be enough to turn the tide in the property market and revive economic growth.
