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[MARKET ANALYSIS] China unveiled measures to boost country-level consumption; policymakers await further data before enacting stronger measures

Newsquawk Staff ·

TLDR

  • China has unveiled measures aimed at boosting consumption across lower-tier cities and countries, with fiscal support a key focus.
  • A move which comes after a string of poor Chinese data, with the recent release of Industrial Production (4.5% vs exp. 5%) and Retail Sales 0.6% (exp. 1.5%, prev. 1%) missing expectations.
  • APAC stocks were broadly lower in overnight trade, but with Chinese indices cushioned by the announcement. Nonetheless, the Shanghai Composite (-0.2%) and Hang Seng (-0.4%) posted modest losses.
  • Focus now turns to whether China opts to deliver wide-scale effort to boost demand within the region, with particular attention on the next economic Politburo meeting in September.

Measures

  • The plan itself involves China rolling out 18 measures to boost spending, covering retail infrastructure, business formats, product and service supply, distribution networks and financial support.
  • From the fiscal side of things, the measures will help improve access to personal consumption loans and service-sector business loans. Moreover, businesses will be able to qualify for interest subsidies as part of government-backed plans.
  • The Ministry said that the measures aim to "create a favourable environment for invigorating lower-tier markets" and "help build a robust domestic market."

Weak data / Commentary

  • A string of weak Chinese data has led to increased expectations of stimulus from policymakers.
  • Chinese GDP printed at 4.3% for Q2, beneath expectations of 5%, and more importantly, below China’s target of 4.5-5%. July’s activity data (mentioned above) has also boosted calls for fresh stimulus; TD Securities, following the release, wrote that it “increases the urgency for policymakers to heed President Xi's call for stronger counter-cyclical adjustments from the July Politburo meeting”. Analysts at the firm believe China could announce fresh stimulus at the September Politburo meeting, if economic momentum continues to wane.
  • Analysts at Pantheon Macro opine that policy support measures will likely be increased in late September/October, should domestic growth remain sluggish. Whilst the firm believes it is unlikely that a broad policy rate cut will be delivered, it sees the chance of additional government bond quota and property support measures.

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