China’s Stock Market Surge Amid Economic Stimulus Measures #

China’s stock market has experienced a significant rally, marking its largest single-week gain in nearly 16 years. The CSI 300 index, which tracks major companies listed in Shanghai and Shenzhen, surged 14.9% by midday Friday, including a 3.8% increase on that day alone. This remarkable performance represents the most substantial weekly gain since November 2008, during the global financial crisis.

The Hong Kong market also saw impressive gains, with the Hang Seng Index rising 12.9% for the week. These increases have propelled mainland Chinese stocks into positive territory for the year, while Hong Kong stocks have soared 21% higher in 2024. This marks a significant turnaround for markets that had been underperforming compared to other Asian and U.S. markets for over a year.

The rally comes in response to the Chinese government’s abrupt move to stimulate the economy. On Tuesday, top financial regulators announced a package of measures, including interest rate cuts and reduced mortgage down payment requirements. Additionally, commercial banks are now allowed to lend a larger proportion of their assets.

Further boosting investor confidence, regulators announced that banks would be permitted to lend heavily to companies for share repurchases and to major shareholders for increasing their stakes. These moves are expected to provide stronger financial support for stock purchases and help elevate share prices.

The government also announced plans for local authorities to make one-time payments to those in need before an upcoming national holiday. While details of this initiative remain unclear, it signals a new willingness by the government to provide direct relief to the very poor.

China’s Politburo met on Thursday and called for additional action to support the economy, though specific details were limited. The statement hinted at a willingness to use government funds to stabilize financial markets and the economy, including efforts to boost the capital market and guide medium- and long-term funds into the market.

Economists are divided on whether this distribution of money to the poor will lead to a broader expansion of the social safety net and an increased role for consumer spending in the Chinese economy. The country’s top leadership has previously expressed caution about expanding government support payments to the poor, warning against the potential pitfalls of excessive welfarism.

As China grapples with economic challenges such as falling prices, weak retail sales, and a housing market crisis, these stimulus measures and the resulting stock market rally could help shore up public confidence, at least in the short term. The government’s efforts aim to encourage consumers and home buyers to increase spending and support economic growth.