RPT-BREAKINGVIEWS-China’s wealth pledge will face tough sceptics

Reuters12-10
RPT-BREAKINGVIEWS-China’s wealth pledge will face tough sceptics

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Chan Ka Sing

HONG KONG, Dec 10 (Reuters Breakingviews) - China's policymakers understand people will spend more if they feel rich. That's the key takeaway from the readout of the ruling Communist Party’s Politburo meeting on Monday. It identifies stabilising stock and property prices as the main task in 2025, and provides the clearest signal yet, that Beijing is committed to putting a bottom underneath both markets.

Top officials are making reassuring sounds. China will step up “unconventional” counter-cyclical measures, state-run news agency Xinhua reported. These will come in the form of more proactive fiscal policies and an “appropriately loose” monetary policy - such language for money supply has not been used since 2010, when China was battling the aftermath of the global financial crisis.

The remarks came days ahead of the annual Central Economic Work Conference that will set the policy agenda for 2025. Sentiment was grim before the same meeting last year. Moody’s had just lowered its outlook on China’s government credit ratings to negative from stable, for instance. The mood has improved since Beijing started rolling out stimulus measures in September, buoying the MSCI China .MICZ000I0NUS up nearly 20% this year.

Yet, the People's Republic faces many sceptics. Strategists at Morgan Stanley forecast Chinese equities will be between 30% higher or 30% lower by December 2025 in their bull and bear case. The bank is, for another year, projecting an extremely wide range of outcomes for the market even though stock performance matched the American bank's bull case estimate for China this year.

That hints at the challenge. China has ordered companies to boost payouts to shareholders and real estate developers to complete unfinished homes. It won't be easy to put a floor under prices beyond that if deflationary pressure persists, and the economy enters a second trade war with the United States.

It heralds more volatility: Chinese stocks surged 35% in two weeks in mid-September on Beijing's pledges to prop up the $18 trillion economy. Yet, the gain was quickly halved as investors concluded the fiscal support, including a 10 trillion yuan ($1.4 trillion) package to ease local government debt woes, is not strong enough. Homebuying sentiment remains fragile because major developers are stuck in debt restructuring talks. China's goals are clear, fulfilling them will be hard.

CONTEXT NEWS

The Political Bureau of the Communist Party of China held a meeting on Dec. 9 to study the economic work of 2025. For a sound performance next year, a more proactive fiscal policy and a moderately loose monetary policy should be adopted, the official Xinhua news agency reported. The meeting also urged efforts to stabilise the housing and stock market.

Graphic: Chinese stocks are having a decent year https://reut.rs/4fc0uws

(Editing by Una Galani and Ujjaini Dutta)

((For previous columns by the author, Reuters customers can click on CHAN/ KaSing.Chan@thomsonreuters.com))

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