Stocks in China had a mixed response on Monday to a press meeting over the weekend where officials promised more action but didn’t give a clear number for how much the country would spend to do it.
On the last trading day, the Shanghai Composite SHCOMP 2.07% went up 2.1% and the Hang Seng HSI -0.75% went down 0.8%. Both indexes have gone up since China cut interest rates and took a lot of other steps to help the economy last month.
In premarket trade, the stock of Alibaba Group Holding Ltd. (BABA -2.05%) fell 2% and the stock of JD.com Inc. (JD 1.05%) went down 1%. The iShares China Large-Cap ETF FXI -1.23% went down by 1%. European luxury goods companies lost more money. Shares in Gucci owner Kering S.A. KER -3.83% and LVMH Moet Hennessy Louis Vuitton SE MC -2.34% both fell.
The Chinese Finance Minister, Lan Fo’an, said that the country would raise the debt ceiling to help local governments. He also said that the country would put out special bonds to help banks get more capital and that the bond market would be stabilized by a mix of bonds and tax policies.
He also said that the central government still has “considerable space” to borrow money and make the debt bigger. Fred Gao of the Inside China blog says that phrase was marked in red in the official transcript.
UBS economists, led by Tao Wang, said that even though only 400 billion yuan ($56 billion) in new funding was released, the bank would be able to fully use the 2.3 trillion yuan already authorized this year more quickly and in larger amounts than it had thought before. What about 2025? If the debt restructuring goes over 3 trillion yuan, the experts said, growth could also go up.
The two pieces of forward guidance from the MOF—1) the one-time large increase in the debt ceiling to swap local government debt and 2) the use of government funding for property-related purposes, such as destocking—are said to be very important for boosting market confidence and could help stabilize the economy.
The local government debt-swap plan was brought to the attention of analysts at Morgan Stanley. “We think this will lessen the effects of austerity on local governments,” they said. “This will help businesses that have had to deal with tax recovery and penalties imposed by cash-strapped local governments.”
Analysts at JPMorgan said that some of the bad things were that there wasn’t enough support for direct spending and social welfare. They said the next important event would be the meeting of the National People’s Congress standing committee in late October. This meeting could decide how much the debt limit will be raised.
The 10-year government bond yield AMBMKRM-10Y went up from 2.152% to 2.16%.
