To The Moon

TMTPost --  Chinese equities rallied most in two years on Thursday after the Politburo, China’s top decision-making body, delivered a forceful pledged to reinforce its fiscal and monetary stimulus.

Credit：Xinhua News Agency

Mainland China’s CSI 300 gained 4.2%, on the track to its biggest weekly gain in almost a decade.The Nasdaq Golden Dragon China Index, which tracks 65 China-exposed U.S.-listed companies, surged 10.9% higher to close at 6958.10, the highest since May 17. The Chinese share gauge registered a new biggest daily gain since 2022 following a 9.1% rise on Tuesday.  The American depositary receipts (ADRs) of Temu operator PDD soared 13.6%, and its domestic e-commerce rivals Alibaba Group and JD.com climbed 10.1% and 14.4%, respectively. Shares of Bilibili, Vipshop, New Oriental all popped more than 10%, Chinese electric vehicle maker Xpeng advanced 11.9%, while its peers Li Auto, Zeekr popped 6.7% and 5%, respectively. Exchange-trade funds (ETFs) tracking the investment in Chinese equities accordingly rose. The KraneShares CSI China Internet ETF gained 11.6% and the Invesco China Technology ETF added 9.7%.

The shares rally came on heels of a meeting of the Political Bureau of the Communist Party of China (CPC) Central Committee. The meeting, chaired by Chinese President Xi Jinping who is also the general secretary of the committee, was held to analyze and study the current economic situation and make further arrangements for economic work, the state media Xinhua News Agency reported.

During the meeting, Chinese policymakers said efforts will be made to stabilize the property market and reverse its downturn, adjust the policy of housing purchase restrictions, lower interest rates on existing mortgage loans, promptly improve land, fiscal, tax and financial policies, and promote the establishment of a new model for real estate development, according to the report.

China should effectively implement existing policies, step up efforts to roll out incremental policies, further make policy measures more targeted and effective, and strive to accomplish the targets and tasks for this year's economic and social development, said the meeting. It is imperative to lower the reserve requirement ratio (RRR) and implement strong interest rate cuts, the meeting said.

The meeting emphasized it is required to increase the countercyclical adjustment of fiscal and monetary policies, ensure necessary fiscal expenditures. It stressed the need to issue and make good use of ultra-long special treasury bonds and local government special-purpose bonds to better leverage the driving role of government investment. It called for efforts to boost the capital market, vigorously guide medium and long-term funds to enter the capital market, clear the obstacles for social security, insurance, and wealth management funds to invest in the capital market.

Mergers, acquisitions and restructuring of the listed firms will be supported, the meeting noted, urging efforts to steadily advance the reform of publicly-offered funds, and mull over and introduce policy measures to protect small and medium-sized investors.

The meeting stressed prioritizing employment support for key groups such as fresh college graduates, rural migrant workers, individuals just lifted out of poverty, and zero-employment households.

Assistance will be stepped up for those facing difficulties in securing jobs, including old-age individuals, people with disabilities, and those unemployed for a long time, the meeting said, adding that more assistance will also be provided to low-income population.

Earlier this week, China’s central bank announced  its biggest stimulus since the Covid-19 pandemic  to showcase policymakers’ determination to revive the economy and the stock market. The People's Bank of China (PBOC) decided to  cut the RRR by a half percentage points, or 50 BPs, in the near future, providing about RMB 1 trillion in long-term liquidity to the financial market, said Pan Gongsheng, governor of the PBOC, at a press conference Tuesday. The central bank will also reduce the interest rate of seven-day reverse repurchases from 1.7% to 1.5%, according to Pan.   

Pan also announced China’s biggest package yet to boost its property market. He said China will lower mortgage rates on existing home loans to a level similar to those of newly issued housing loans. The average reduction in mortgage rates for existing home loans is expected to be around 50 BPs, he said. 

"The new policy, which is conducive to further reducing borrowers' mortgage interest expenses, is expected to benefit 50 million households, or a population of 150 million," said Pan. This move is expected to reduce the total interest expenses for households by approximately RMB150 billion per year on average, which will help boost consumption and investment, Pan added.

Moreover, the central bank will create new monetary policy tools to support the stable development of the stock market, said Pan. The central bank will establish a swap program for securities, funds and insurance companies to obtain liquidity from the central bank through asset collateralization. The program will significantly enhance companies' ability to acquire funds and increase their stock holdings, Pan said. The central bank will also create a special re-lending facility to guide banks to provide loans to listed companies and their major shareholders for buybacks and increasing shareholdings, he said.