China’s market crash puts pressure on Xi to lend support

(Bloomberg) — Chinese officials are under pressure to back up their reassuring rhetoric about the economy with more substantial action.

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Stocks in China are heading for their third consecutive week of losses, the yuan is trading near an eight-month low and angst in the domestic credit market is mounting. While Premier Li Qiang pledged on Thursday to “waste no time” in delivering targeted stimulus, he offered none of the details investors were asking for.

In a meeting with economists, Li said the government would introduce a set of “targeted, comprehensive and well-coordinated” measures to stabilize growth and employment and prevent risks “in a timely manner”. A reading of the event was published by the official Xinhua news agency.

Expectations that the government will announce economic support have been building in recent weeks as the recovery falters. The housing market is weak, youth employment is at record highs, and household and business confidence remains sluggish.

The central bank cut a key interest rate last month for the first time in nearly a year, signaling a shift to looser monetary policy going forward. But the rate was only cut by 10 basis points and additional measures were marginal, such as moves to extend tax incentives for people to buy electric cars. Economists have warned that any stimulus is likely to be limited in scope given China’s heavy debt burden.

“Policies are still being worked out, but big stimulus is unlikely,” said Bruce Pang, chief economist at Jones Lang Lasalle Inc. He added that the government needs to find a balance between stabilizing growth in the short term and avoiding long-term structural risks.

During the meeting with economists, Li said the country was “at a critical period of economic recovery and industrial upgrading”. The remarks suggest authorities want to stay the course charted at an economic meeting among top leaders in April, Pang said.

Stocks in China and Hong Kong fell on Friday amid broad-based weakness in Asia, which was also fueled by strong U.S. jobs data that underscored expectations of continued policy tightening. monetary policy by the Federal Reserve.

A gauge of Chinese stocks listed in the financial hub lost 1.6% at 11:22 a.m. local time, bringing the decline so far this year to 7.6%. The onshore CSI 300 index was down 0.6%, with a year-to-date decline of 1.3%. The offshore yuan was little changed at 7.2548 to the dollar, set for the first weekly gains in three.

Still, not all traders are convinced that authorities in Beijing will come under pressure from the falling market.

A trader, who asked not to be identified because he is not authorized to speak publicly, said Chinese policymakers seem to perceive markets will respond favorably to stimulus rhetoric even if it doesn’t. there is no follow-up with concrete actions.

Despite growing calls for stimulus, Premier Li on Thursday signaled his intention to bolster confidence in long-term economic fundamentals, urging officials to “maintain the strategic focus”, according to the Xinhua reading.

He also underscored a formal commitment to address the pain felt by private and foreign companies, which have seen their profits plummet and their market access shrink in recent years amid regulatory repression and rising US-China tensions. A “regular communication mechanism” will be created with the sector, he said. Earlier in the week, the head of the country’s main economic planning agency met with representatives of five private companies to discuss business terms.

Despite the government’s efforts this year to attract more foreign companies, foreign companies have become more reluctant to invest in China, with new investment actually used falling nearly 6% in the first five months of the year. year compared to the same period last year. President Xi Jinping’s comments on Friday that the government must continually come up with new measures to attract foreign investment may indicate authorities are growing increasingly concerned about the decline.

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Several of the economists who attended the meeting with Li are known for their research on fiscal policy and local government debt, while others have focused on financial markets, industrial economics and urbanization.

One of the participants was Zhao Wei, chief economist at Sinolink Securities Co. He wrote in a research report on Tuesday that the Chinese economy is entering a “post-ownership era” where growth is less and less dependent on the sector. real estate. Authorities should prevent secondary risks to banks and local governments in the short term and promote new industries, including equipment manufacturing and producer services, Zhao wrote.

The Politburo, made up of 24 Communist Party members, will have a chance to discuss the stimulus later this month, when it is scheduled to meet for a key economic meeting. The body’s July meeting is usually where it charts economic policy for the rest of the year.

–With help from Zhu Lin, Ishika Mookerjee, Wenjin Lv, Yujing Liu, Rebecca Choong Wilkins, Stanley James and James Mayger.

(Updated with President Xi’s comments on foreign investment.)

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