Chinese stocks underperformed in Asia amid concerns that authorities will withhold stimulus after unveiling a conservative economic growth target at the National People’s Congress.
(Bloomberg) — Chinese stocks underperformed in Asia amid concerns that authorities will withhold stimulus after unveiling a conservative economic growth target at the National People’s Congress.
The onshore benchmark CSI 300 Index slipped as much as 1% early on Monday, erasing more than half of its gain from last week. The Hang Seng China Enterprises Index, a gauge of Chinese stocks traded in Hong Kong, lost as much as 1.2% before paring the bulk of its losses.
Premier Li Keqiang announced a growth goal of around 5% for this year, below most estimates, as the NPC kicked off on Sunday. The absence of more aggressive steps to boost growth is seen likely to weaken the momentum of a nascent rebound in Chinese shares last week following the release of robust manufacturing data.
“Frankly this number was not even in our possible scenarios,” said Li Weiqing, a fund manager at JH Investment Management Co., referring to the growth target. “I think this means that any anticipation for massive stimulus, either for real estate or for investment, is going to be seen as falsified, at least in the near term.”
Li Keqiang’s work report mostly repeated familiar official rhetoric from prudent monetary policy to maintaining a stable currency. The budget released on Sunday also suggested fiscal support will be restrained, with a mild deficit target increase and a special bond quota that heralds slower investments by local governments.
Commodities from iron ore to oil fell as nothing from Chinese authorities suggested appetite for the kind of massive boost deployed to revive the economy after the financial crisis or even at the beginning of the pandemic, when Beijing drove markets for materials like copper and iron ore to record highs in 2021.
Read: China’s Cautious Growth Target Gives World Economy Little Help
Reshuffling Eyed
What may reshape market dynamics in the coming days will be potential sweeping changes to China’s bureaucracy and the lineup of a new Cabinet under Li Qiang, widely expected to be the next premier, as the political gathering continues.
All eyes will now be on a suite of structural changes expected for government agencies, reforms designed to help the Communist Party consolidate its hold over the economy. Among them may be the revival of a powerful top-level commission that will further centralize financial policy formation. Fresh faces to be put in charge of the central bank and key ministries also will be keenly scrutinized.
“Given the complete reshuffling of the government, a key issue to watch in the next few months is how the new leaders will boost private sector confidence,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management Ltd. “This is more important than the fiscal and monetary policies, in my view.”
‘Side Effects’
On property, Li said China will target disorderly expansion in the sector, pledging to help defuse and prevent risk in high-quality, major developers. He reiterated the policy line that “Housing is for living in, not for speculation” that is synonymous with Beijing’s crackdown on builders’ excessive debt in recent years.
A Bloomberg Intelligence gauge of real estate developers slumped almost 2%.
Rather than offering fresh remarks that may further ease concerns about Beijing’s stance on the country’s technology behemoths, Li stressed an industry policy built on self-reliance, underscoring a determination to secure breakthroughs in areas such as semiconductors amid escalating tensions with the US.
While the modest growth goal suggests strong monetary or fiscal help may be off the table for now, some are seeing a silver-lining in President Xi Jinping’s comments on achieving “high-quality development” in the country.
“There will be support to the real economy and sectors that need it, but refraining from massive stimulus will also prevent the side effects that come with it and the risk of messing up our economic restructuring again,” said Zhang Fushen, senior analyst at Shanghai PD Fortune Asset Management LLP. “In a year of a recession in the US, around 5% seems to be a palatable figure.”
–With assistance from Stephen Stapczynski.
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