Beijing’s market rescue efforts fueled a rally in A shares and the Hong Kong market. It was short-lived, however. Both markets fell again on Tuesday, reflecting fragile market sentiment.
President Xi Jinping has voiced support for the economy, and various government departments plan to roll out stimulus measures. However, many investors are still waiting on the sidelines. The authorities have to step up efforts in cutting taxes and fees, reducing red tape, liberalizing markets, lowering financing costs and supporting private enterprises to restore market confidence.
The escalating US-China trade war and global market rout have partly contributed to the economic slowdown and market sell-off in China. Vice Premier Liu He, Xi’s top economic adviser, acknowledged that the biggest economic challenge comes from inside.
The recent debate about ending private property ownership in China has worried business owners and investors.
That’s why the market response to the rescue efforts is largely lukewarm. It will take time before investor confidence is restored as the deep-rooted issues affecting market sentiment have accumulated over the years.
Xi officiated at the opening ceremony of Hong Kong-Zhuhai-Macau Bridge on Tuesday, and embarked on a long-awaited trip to Guangdong. Many have linked Xi’s visit to the late paramount leader Deng Xiaoping’s Southern Tour in the spring of 1992. Deng made the trip at an age of 88 to reiterate the nation’s commitment to reforms amid an ailing economy.
Confidence is very delicate. People are bombarded daily with propaganda from CCTV and state newspapers. But it’s totally different when they saw Deng make the announcement in person during his Southern Tour. Local governments in Guangdong – Shenzhen in particular – took the initiative to press ahead with the reforms and turned the area into the nation’s economic powerhouse.
Market participants are still skeptical about the remarks made by top leaders in recent weeks. At the height of the 2008 financial crisis, then Premier Wen Jiabao admitted that confidence was even more important than gold. In addition to a verbal call for action, Wen rolled out a 4 trillion yuan stimulus package to stem the economic slide.
Certainly, it is highly unlikely that Beijing will unveil a similar massive rescue package this time around. After all, the previous one has been blamed for the excess capacity and inflated local government debt whose ill effects are still being felt by the economy.
But it’s a good starting point that top government leaders have voiced support for the economy. The market should closely watch Xi’s remarks after his visit to Shenzhen, which marked the 40th anniversary of China’s economic reform and opening-up policy.
How the authorities will implement various policy initiatives in the coming months is also critical.
This article appeared in the Hong Kong Economic Journal on Oct 25
Translation by Julie Zhu
[Chinese version 中文版]
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