Chinese stocks have suffered their worst fall in 27 years after efforts by Beijing to stimulate the world’s second-largest economy disappointed investors.
Stock markets in Asia fell sharply after China’s top economic planning authority failed to announce further measures to improve flagging growth.
On Tuesday, the National Development and Reform Commission held a press conference in which officials were expected to reveal specific policies to supplement the stimulus measures announced last month.
However, the hoped-for policy plans were not forthcoming. Instead, the NDRC officials mostly summarised September’s announcements and commented on the general economic situation.
The disappointment pierced the stock frenzy that had rallied the market in the days after the September stimulus announcement. On Wednesday, the Shenzhen composite index tumbled by 8.2% in its biggest fall since May 1997, while the Shanghai stock exchange lost 6.6% and the benchmark CSI 300 slid by 7.1% after the Golden Week holiday. Hong Kong’s Hang Seng was down by 1.4%.
However, the markets remain higher than a month ago, before the central bank and the politburo proposed a “package of incremental policies” to stabilise China’s ailing economy. The CSI 300 index is 7% higher than it was a year ago.
After the stock market plunge, the State Council Information Office said it would host a press conference on Saturday attended by finance minister Lan Fo’an.
The theme of the news conference is “intensifying countercyclical adjustment of fiscal policy to promote high-quality economic development”.
Certain fiscal measures, such as the issuance of government bonds, require the approval of China’s legislature, the National People’s Congress. The Congress’s standing committee meets in late October, an event that will be closely watched by analysts and investors for signs about further stimulus measures.
Richard Hunter, the head of markets for the trading platform Interactive Investor, described Wednesday’s stock market falls as a reflection of “investor disappointment”. He said: “The main concern was that the raft of measures announced prior to last week’s holiday – which had lit the fire under a moribund market – were not followed up with any specific actions from the authorities, or indeed further plans.”
Alvin Tan, the head of Asia FX strategy at RBC capital markets, told Reuters that investors had expected stimulus measures worth 2tn-3tn yuan (£200bn-£300bn) to be announced this month. Positive sentiment “will turn quickly if we don’t get some package at least matching” that range, Tan said.
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China’s economy has struggled to recover from the coronavirus pandemic and is beset by a range of structural and geopolitical problems, including a struggling property market. According to official statistics, the urban youth unemployment rate reached 18.8% in August, while the urban unemployment rate across all age groups was 5.3%.
There are growing concerns that China will miss its own 5% annual growth target, a relatively modest goal by the country’s historical standards.
Meanwhile, the government is engaged in a tit-for-tat trade war with the EU, one of China’s most important trade partners. On Tuesday, Beijing announced tariffs on imports of European brandy and said it was considering duties on imported petrol cars. The levies followed a vote by EU leaders to tax imports of Chinese electric vehicles.
