Last week, the Chinese government announced several stimulus measures in a determined attempt to reach their annual growth target ‘of around 5%’ for an economy that has failed to fire post Covid.

Whilst piecemeal support measures have been ‘drip fed’ over the last year, this time may be different given a coordinated effort to prop up the economy from both monetary and fiscal stimulus.

The two-pronged approach signals that domestic weakness has finally become uncomfortable for China’s top policymakers.

So what measures were announced, and will they be effective?

On Tuesday, 24 September 2024 a series of monetary policy measures were announced including a cut in the reserve requirement ratio (RRR) by 50bps and the 1-year medium term lending facility (MLF) rate by 30bps. Additionally, mortgage rates were cut by 50 bps which could lead to RMB 150bn of interest savings.

However, just two days later in an off-cycle meeting, the central committee of the Chinese government announced long-awaited fiscal measures including:

Rare one-off cash handouts and subsidies to those in the lowest income bracket
Pledge to improve the employability of college graduates, migrant workers and low-income families.

What’s different about these measures (compared to previous ones) is that they have become more directed at addressing the demand side of the economy – namely consumer spending which is the largest component of GDP growth.

Given the indebted property market has weighed down this component through the wealth effect channel, addressing this will likely remain a key priority for the Chinese government moving forward.

Whilst further details are yet to be announced, the proposed measures appear promising and look likely to provide a short-medium term boost to GDP growth.

The market reaction was instantaneous with the benchmark CSI 300 index rallying 15% over the week ending 27 September 2024 as investor sentiment rose at the margin heading into China’s National Day Golden Week.

This rally occurs at a time when many global equity investors are underweight China, suggesting that the worst may already be priced in.

And Chinese equities are not the only market to see support following the stimulus announcement. The benchmark Iron Ore futures contract rebounded above USD $100 a tonne, and the commodity sensitive Australian dollar rose to around $0.69 USD.

Written by Hugh Lam, Investment Strategist at Betashares