Editorial:Central Government's Measures to Support the Markets

【明報專訊】THE PEOPLE'S BANK OF CHINA has announced the reduction of the reserve requirement ratio by 0.5 percentage points, thus releasing RMB 1 trillion of liquidity into the market. At the same time, it will increase its efforts to support the financing of rural villages and small and micro enterprises.

Over the past year, the mainland and Hong Kong stock markets have been weak. The CSI 300 Index has plummeted by over 10% throughout the year. The Hang Seng Index has even dropped by nearly 14%, falling for four consecutive years. Since the beginning of 2024, the tumble in both stock markets has continued. As of Monday, the Hang Seng Index had fallen by 8.5%, and the four major indexes of mainland China had hit almost their four-year low. The Shanghai Composite Index has fallen by 7% so far this year.

Data from the foreign media shows that the total market value of the mainland and Hong Kong stock markets has tumbled by over US$6 trillion from the high in 2021. Early this week, the Indian stock market, with a total market value of US$4.33 trillion, even overtook the Hong Kong stock market, valued at US$4.29 trillion, thus becoming the world's fourth-largest stock market after the US, mainland China and Japan.

No doubt there can be a significant discrepancy between the performance of the capital market and the conditions of the real economy or even the public's perception of the economic performance. Despite the US's red-hot stock market and decent economic data, opinion polls show that many Americans believe the economic situation is bad and are dissatisfied with President Biden's administration. As for mainland China, while the stock market is sluggish, its economic growth still reached 5.2% last year. Furthermore, despite the fierce headwinds facing global trade, imports and exports denominated in RMB recorded a slight increase.

The central government has repeatedly stressed that manufacturing is the foundation of the nation and the real economy. The development of finance with Chinese characteristics must adhere to the fundamental principle of serving the real economy. However, when the stock market underperforms, the real economy will inevitably be affected.

During the course of the three-year COVID-19 pandemic, the mainland implemented strict and prolonged lockdowns, which came at a certain economic cost. Local government debts also increased significantly. Furthermore, the mainland was undergoing economic transformation with the promotion of high-quality development, and a heavy-handed approach was taken on the unsustainable real estate development model. This was a step in the right direction. However, it is also an indisputable fact that the real estate market has undergone a substantial adjustment, which has hit domestic demand.

Over the past six months, the central government has repeatedly introduced macroeconomic policies and measures to stabilise the property market and promote consumption. However, it will take time to establish a new model of real estate development and to resolve the local debt problems. High-quality development cannot be achieved overnight. In the capital market, time is of the essence, as it expects more direct measures to prop up the markets.

On Monday Premier Li Qiang proposed taking more "forceful measures" to stabilise the stock market and investor confidence. The foreign media has reported that the mainland is considering a number of rescue measures, including the establishment of a 2-trillion-yuan stock market stabilisation fund.

The central government's measures to rescue the market will certainly have a supportive effect on the mainland and Hong Kong stock markets. However, there are too many variables concerning the domestic and foreign political and economic situations that affect how the markets will move. It will take time to consolidate market confidence. In the meantime, the stock market could fluctuate widely, so investors must pay attention to the risks.

明報社評 2024.01.25:中央出手救市 免累實體經濟










/ Glossary生字 /

discrepancy:a difference between two or more things that should be the same

perception:an idea, a belief or an image you have as a result of how you see or understand something

of the essence:necessary and very important

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