There is an air of panic in Zhongnanhai, the seat of power in Beijing. Faced with a new collapse in Chinese stock markets, Prime Minister Li Qiang urgently convened the State Council (the government) on Monday, January 22, and called for “vigorous measures”. According to the Bloomberg agency, the meeting would have resulted in a proposed emergency fund with 2,000 billion yuan (nearly 257 billion euros) to support Chinese stocks. The money would be pumped into the foreign reserves of state companies. The project, not yet confirmed, seems hopeless: it would cost Beijing dearly, with no guarantee of success. In 2015, a similar fund was set up after the bursting of a speculative bubble, but was unable to avoid a long correction.
On Wednesday January 24, the Chinese central bank also announced a reduction in bank reserve requirements, to free up liquidity. Since the start of the year, the Shanghai Stock Exchange has fallen by 7%, giving way to Tokyo as the leading Asian stock exchange, while that of Hong Kong has lost 12% and fallen behind the Bombay Stock Exchange in India, fueling ironic comments on social networks.
The reasons for the decline are known: since the reopening of China after the end of the zero Covid policy at the end of 2022, the hoped-for recovery has never taken place. Exports are falling, consumption is stagnating to the point that the country is in deflation, while the real estate crisis which has lasted for two years undermines both the confidence of households, that of investors, and the coffers of local governments. In 2023, growth officially reached 5.2%, one of its worst results in more than thirty years.
” Lack of confidence “
More than the performance of the economy, it is the lack of convincing reaction from the authorities which fuels investor mistrust. Despite measures taken in favor of the real estate sector, sales of new apartments fell by 34% in 2023. And, when it announced growth of 5.2%, during the World Economic Forum in Davos (Switzerland), the January 16, Premier Li Qiang congratulated himself on having reached this level “by avoiding a major stimulus”. Enough to dampen the hopes of investors who were still waiting for strong support for activity in 2024. “I think people are a little confused by the fact that, politically, the government doesn’t seem to know what to do, or not ready to adopt the solutions that might work”analyzes George Magnus, independent economist, specialist in the country.
You have 45% of this article left to read. The rest is reserved for subscribers.