(Yicai Global) March 16 -- Chinese markets rebounded yesterday after the government pledged support for troubled sectors such as real estate and efforts to boost sluggish economic growth. The measures were announced after a meeting of the cabinet’s financial stability and development committee.

Following the meeting, the Hang Seng Index closed up over 9 percent at 20,087.50, the largest single-day increase for 13 years, and the Hang Seng Tech Index surged by more than 22 percent, its biggest-ever daily gain. The Shanghai Composite Index [SHA: 000001] closed up 3.5 percent at 3,170.71, while the Shenzhen Component Index [SHE: 399001] climbed 4 percent to close at 12,000.96.

The committee’s meeting, presided over by Vice Premier Liu He, effectively stabilized market expectations, helping to avert irrational panic, said Zhou Maohua, an analyst at China Everbright Bank.

Markets in the Chinese mainland and Hong Kong as well as Chinese stocks listed overseas had all slumped recently amid worrying international developments and a worsening pandemic situation in China. As of yesterday’s market close, the Shanghai had lost nearly 12 percent this month and Shenzhen was down 15 percent. Shenzhen’s Growth Enterprise Index [SHE: 399006] had seen a drop of more than 13 percent this month, while Hong Kong’s Hang Seng Index had fallen by 25 percent since Feb. 18.

The Financial Stability and Development Commission held the meeting today to discuss policies to support the market and the wider economy.

“The positive policy-related statements are needed at present, and they will not only boost market confidence, but also offer guidance on how to rationally evaluate a series of changes,” Lian Ping, chief economist at Zhixin Investment Research Institute, told Yicai Global.

Proactive Monetary Policy

The meeting decided that action was needed, in the form of proactive monetary policy and new loans, to bolster first-quarter economic growth.

“Emphasizing the proactivity of monetary policy can be regarded as a positive statement,” Lian noted, adding that loans and rational expansion of social financing will be key aspects. The future focus of monetary policy is likely to be the aggregate money supply and structural operation of credit, he said.

The economy recovered better than expected in January and February, according to data released yesterday by the National Bureau of Statistics. The value added of large industrial enterprises rose 7.5 percent on the year, which was 3.2 points faster than December. And total retail sales of consumer goods grew 6.7 percent, 0.5 point more than in December, reaching CNY7.44 trillion (USD1.17 trillion).

The market previously had low expectations for further growth stabilization measures, given the macroeconomic recovery in the first two months, said Zheng Houcheng, director of Yingda Securities' research institute. But today’s meeting spoke of "boosting the first-quarter economy in a down-to-earth manner," which suggests more substantial efforts.

"Easy credit will continue to advance, with looser monetary policy this year than in 2021," Zheng predicted.

Risk Solution

Powerful and effective solutions to defuse and prevent risks in the real estate sector will be studied and released, with the aim of providing support measures for the transition to a new development model, the meeting said.

The meeting emphasized the need to find solutions related to the prevention and control of property firms’ risks, Lian noted, adding that policy support for the property market is timely and will play a positive role in the gradual stabilization of the sector.

The short-term downward pressure on real estate investment growth has been mounting, said Gen Xinxin, a senior researcher at Zhixin Investment Research Institute. In January and February, apartment sales were relatively poor, with prices and sales volume declining while the inventory of available units saw a big increase, Gen noted.

In addition to the fact that negative growth was seen in personal house loans for the first time, the land market also remained sluggish, with declines in both the area for which developers bought usage rights from local authorities and the money they spent to buy the rights. Meanwhile, issues over some developers' cash flow and debt still require vigilance, Gen added.

Emphasis on Stability

The meeting stressed that policies that have a significant impact on capital markets should be coordinated with financial management agencies in advance to keep policy expectations stable and consistent. The meeting also said financial institutions must take the overall situation into consideration and firmly support development of the real economy. Long-term increases in the shares held by institutional investors will also be welcomed.

Chinese and US regulators are maintaining good communication at present and have made positive progress, the meeting said with regard to offshore Chinese stocks, which have also seen worrying performance recently, partly due to concerns about a crackdown by US authorities. The regulators are committed to formulating concrete cooperation plans and the Chinese government continues to support overseas listings by domestic firms.

The netting also said ‘rectification’ work at large tech companies needs to be completed as soon as possible so as to promote the stable and healthy development of the platform economy and improve international competitiveness.

The emphasis should be on governance instead of crackdown for platform economy regulation, according to Huang Yiping, director at the Institute of Digital Finance, Peking University.

The goal of the governance should be orderly development and common prosperity, with regulatory policies ensuring standardized behavior by the large platform companies, while also enhancing their self-discipline.

Editor: Tom Litting