Hong Kong — For the past four years, Francis Lun, the owner of a small brokerage firm in Hong Kong, has been watching as the city’s financial markets floundered. The Hang Seng Index, once a pillar of economic strength, had been in a prolonged decline, exacerbated by the economic fallout from the pandemic and restrictive measures in both Hong Kong and mainland China. But in late September, things began to change. China’s government introduced a series of stimulus measures that sparked a dramatic rally in the stock market.
Since then, the Hang Seng Index has surged by over 18% in just two weeks—the largest gain the market has seen in nearly two decades. For Lun, who has weathered years of uncertainty, the turnaround has been a welcome relief. “We were counting the days, waiting for something to happen,” Lun explained from his office. “But now, things are picking up, and we’re finally seeing some movement in the market.”
While the stock market has responded positively, the real question is whether these gains will translate into broader economic recovery. China’s real economy is still facing significant challenges, with concerns about deflation and a lack of consumer confidence casting a shadow over the country’s growth prospects. Economists are warning that while the stimulus measures have provided a temporary boost to financial markets, they may not be enough to address the underlying problems facing China’s economy.
Beijing’s initial response has been focused primarily on monetary policy, including interest rate cuts and adjustments to banks’ reserve requirements. While these measures have helped ease some of the immediate financial pressures, many believe that they do not go far enough to address the deeper structural issues at play. To truly revive the economy, experts argue, China needs to adopt a more aggressive fiscal policy that involves increased government spending on public infrastructure and consumer-driven projects.
“The root of the problem lies in the lack of consumer confidence,” explained a recent report from Nikko Asset Management. The report emphasizes that without bold fiscal policies, China risks falling into a prolonged period of stagnation. Many economists are calling on the Chinese government to take more decisive action, including implementing large-scale public works projects and providing subsidies to encourage consumer spending.
Ray Dalio, the founder of Bridgewater Associates, has also weighed in on the situation. In a recent social media post, Dalio suggested that this could be China’s “whatever it takes” moment, drawing parallels to the bold economic measures taken by Western governments during past crises. According to Dalio, China’s leaders need to go beyond the measures they have already introduced and take more sweeping action to restore confidence and stabilize the economy.
There are signs that additional stimulus measures may be on the way. The National Development Reform Commission, China’s top economic planning agency, is expected to announce a package of policies aimed at boosting growth in the coming days. Analysts are hopeful that these measures will include significant increases in public spending, particularly on large-scale infrastructure projects that could help reignite demand across various sectors.
One area of particular concern is the property market, which has long been seen as a major drag on the economy. At a recent press conference, top financial officials announced a series of measures aimed at stabilizing the housing market, including cuts to mortgage rates and reductions in down payments for second-home buyers. These measures are designed to address the oversupply of housing and encourage new investment in the sector.
The press conference itself was notable for its transparency—a departure from the typically opaque nature of Chinese policymaking. The event, which featured high-ranking officials from the People’s Bank of China and other regulatory bodies, was seen as a clear indication that Beijing is taking the situation seriously and is committed to addressing the challenges facing the economy.
However, many analysts caution that the road to recovery will be long and difficult. While the recent stimulus measures have provided a much-needed boost to the stock market, the broader economy remains fragile. Without a sustained commitment from China’s leadership, it is unclear whether the current momentum can be maintained. Some economists, such as Jia Kang, a former director at the Ministry of Finance, have called for even more aggressive action. Jia recently suggested that China should issue up to 10 trillion yuan in long-term bonds to fund large-scale infrastructure projects. According to Jia, this level of investment is necessary to prevent the economy from slipping into a prolonged period of stagnation.
As the world watches China’s next moves, the stakes are high. The success or failure of these efforts will have significant implications not only for China but for the global economy as a whole. For now, the focus remains on Beijing’s ability to navigate this critical juncture and steer the country back toward sustained growth.
