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Chinese stocks and bond prices climbed on Tuesday following a pledge by the country’s leaders to implement “moderately loose” monetary policy to revive economic growth in the world’s second-largest economy.
The CSI 300 stock index rose as much as 3.3 per cent at the open before paring gains to be 1.4 per cent higher, while yields on China’s benchmark 10-year bonds slipped five basis points to 1.86 per cent in the morning session, hitting a record low as investors bet on further interest rate cuts from the central bank. Bond prices move inversely to yields.
The rally came after China’s politburo, the Communist party decision-making body chaired by President Xi Jinping, vowed to implement “unconventional” measures to boost growth and stabilise the stock market and property sector.
Policymakers also pledged on Monday to adopt “more proactive” fiscal policy, indicating the amount of government support could increase. The leaders also vowed to “vigorously boost consumption”.
Investors have been looking for further signs that Beijing — which announced some economic stimulus measures in September — is stepping up efforts to boost consumer demand, with the economy under deflationary pressure for much of the year.
Trade data published on Tuesday showed China’s imports in November fell 3.9 per cent year on year, the most since February, which analysts said reflected weak demand. Inflation data published on Monday showed consumer prices rose just 0.2 per cent year on year in November.
“The contraction of imports is consistent with the weak [consumer price] data,” said Zhiwei Zhang of Pinpoint Asset Management in a note. “The politburo meeting yesterday signalled [a boost to] domestic demand next year. The market is anxiously waiting for details on what exactly the government will do.”
China’s exports in November rose 6.7 per cent from a year earlier, below analysts’ forecasts in dollar terms.
“Export growth slowed sharply last month, but we doubt this signals the end of China’s recent export boom,” said Capital Economics in a note. “We expect exports to accelerate again in the coming months, supported by gains in export competitiveness and exporters front-running tariffs.”
Donald Trump’s electoral victory last month has raised concerns of higher tariffs. China’s trade surplus with the US widened to $34.9bn in November from $33.5bn a month earlier.
Markets have interpreted the politburo’s remarks as indicating a stronger policy stance that goes beyond the measures announced in September, said Bank of America analysts.
The readout from the meeting “helps confirm that top leaders are fully aware of the aggregate demand weakness beyond [the] local government fiscal crunch, and they are serious in addressing it”, they said.
Dalian iron ore futures rose as much as 3.9 per cent on Tuesday in their largest increase since September, when Chinese officials unleashed a swath of stimulus measures.
Demand for iron ore, a steelmaking commodity, is closely tied to China’s construction and investment growth.
Additional reporting by William Sandlund in Hong Kong
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