Beijing unveils stimulus measures to revitalize the SARs economy

Beijing is stepping up its efforts to support the economies of Macau and Hong Kong with a targeted economic stimulus package aimed at revitalizing growth amid ongoing financial challenges. This initiative reflects the central government’s commitment to bolster economic activity in these Special Administrative Regions (SARs) as part of a broader strategy to address nationwide economic concerns.

On Sept. 24, prominent Chinese financial leaders—including Pan Gongsheng, governor of the People’s Bank of China (PBOC), Li Yunze, Minister of the National Financial Regulatory Administration (NFRA), and Wu Qing, Chairman of the China Securities Regulatory Commission (CSRC)—unveiled a comprehensive stimulus plan. This marks one of the most substantial economic interventions since the COVID-19 pandemic began, addressing both deflation fears and sluggish growth.

The stimulus measures announced by the Chinese government include several key financial adjustments aimed at revitalizing the economy. These measures feature a 0.5 percentage point reduction in the bank Reserve Requirement Ratio (RRR) and a decrease in the seven-day reverse repurchase agreement rate from 1.7% to 1.5%. Additionally, a RMB500 billion structural monetary policy facility has been established to allow financial institutions to purchase stocks by pledging lower-quality assets. Furthermore, a RMB300 billion relending facility at a rate of 1.75% is designed to encourage banks to support share buybacks by listed companies.

To further stimulate the real estate sector, authorities have announced several supportive measures, including a 0.5% cut in mortgage rates, enhanced bank lending for developers’ land purchases, and reduced down payment ratios. There are also incentives for local governments to acquire unsold homes, all aimed at bolstering the housing market and overall economic activity.

Additionally, the government extended its plan for commercial property loans until December 2026. The plan aims to stabilize the struggling real estate sector, which is grappling with defaults, declining sales, and a mortgage boycott. It seeks to enhance liquidity for developers and ensure the completion of unfinished housing projects.

Key measures of the “16-point plan” include equal treatment for private and public developers, extending outstanding loans due within six months by an additional year, and encouraging trust companies to fund mergers and acquisitions in the sector.

Both measures have already influenced market sentiment, with the Hang Seng Index in Hong Kong surging 6.2% on Oct. 2, 2024—the highest level since January 2023—before experiencing slight corrections. Markets in Shanghai and Shenzhen also reported significant gains leading up to the National Golden Week holiday.

Despite these positive developments, analysts caution that further reforms are essential for sustainable recovery. Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis, stated, “Unless China introduces structural reforms to really jump-start consumption, I just don’t think that we will see a major change.” She warned that ineffective stimulus measures could exacerbate existing economic challenges.

Future Directions

The Hong Kong and Macau Affairs Office indicated that “more policies and measures” will be introduced to benefit both SARs during a national policy briefing held recently. The briefing aimed to outline how newly announced stimulus packages will promote economic activity across China.

According to comments from the Office, the central government has actively provided opportunities and support for both regions, stating that it “has been providing the two cities with precious opportunities, continuous momentum, and huge space for development.” This proactive approach aims to address local economic concerns effectively.

Bloomberg reported that China’s capital infusion comes as banks face tightening profit margins and increased demands for national service in stimulating recovery. The injection seeks not only to stabilize the banking system but also to encourage continued lending amid challenging economic conditions.

In a notable shift from previous policies, Chinese officials have announced plans for direct cash handouts aimed at assisting vulnerable segments of society. While specific amounts remain unclear, these handouts are intended to benefit approximately 4.7 million individuals classified as ‘extremely poor’ in China, aligning with efforts to boost retail spending during the October Golden Week holiday.

As these fiscal measures unfold, analysts express cautious optimism regarding their potential effectiveness in stimulating consumer spending and supporting broader economic recovery. The combination of capital injections into banks and direct cash assistance is designed to revitalize economic activity. However, uncertainties persist regarding their actual impact on retail sales and GDP growth.

Market Reactions and Looking Ahead

Following recent announcements, stock market reactions have been mixed. A rally in Chinese stocks fizzled out after investors expressed disappointment over insufficient details regarding government support for economic growth. Yesterday, the Shanghai Composite Index closed 4.6% higher, while Hong Kong’s Hang Seng Index slumped by 9.4%.

European stocks also declined following China’s latest pledge for economic support, as investors had anticipated more substantial stimulus measures. Despite this caution in European markets, shares of major casino operators in Macau surged amid expectations of increased business activity resulting from improved economic conditions.

Looking ahead, the National People’s Congress is expected to play a pivotal role in shaping future policies affecting both Macau and Hong Kong. With meetings scheduled later this month, stakeholders are keenly observing how legislative actions align with central government objectives.

While recent announcements may provide a much-needed boost for Macau’s economy, their effectiveness will ultimately depend on implementation and adaptability in addressing ongoing challenges. Investors and residents alike hope this new wave of stimulus will pave the way for sustainable growth in the region.

Steve Vickers, CEO of SVA—a specialist Political & Corporate Risk Consultancy—reminded stakeholders that “investors need to be mindful that these shifts will affect companies and investments differently.” The upcoming weeks will be crucial for determining the effectiveness of these stimulus measures and their implications for China’s broader economy.