China: Stocks fall to their lowest level in years - How does the government react?

China: Stocks fall to their lowest level in years - How does the government react?

According to a report by finanzmarktwelt.de,
The economy in China is simply not getting going - and now Chinese stocks are falling to their lowest level in years, while the rating outlook for China has been lowered to "negative" by Moody's. Stocks in mainland China and Hong Kong fell for a third straight day as many investors remain concerned about weakness in the world's second-largest economy heading into next year.

China: stocks at their lowest level in years
Stocks in mainland China and Hong Kong fell for a third straight day as many investors remain concerned about weakness in the world's second-largest economy heading into next year. The MSCI China Index slipped more than -2%, reaching its lowest level since November 2022, Bloomberg reports. The index maintained losses after Moody's Investors Service cut its outlook on Chinese government bonds to negative. On the mainland, the CSI 300 index closed -1.9% lower, remaining at its lowest level since 2019. Chinese stocks continued to post losses in December, a continuation of the previous month's move, as Chinese stocks emerged as a negative outlier amid the broad rally in global markets.

Bloomberg reported that foreign investors sold a net 7.5 billion yuan ($1 billion) in mainland stocks through trading links with Hong Kong on Tuesday, the most since October 19. The Hang Seng China Enterprises Index fell as much as -2.3%, reflecting a sharp sell-off in some stocks such as Lenovo Group Ltd. and NetEase Inc. An index of real estate developers tracked by Bloomberg Intelligence fell more than -3%.

The government in Beijing is increasingly concerned about the economic downturn, but faces the dilemma that further stimulus measures would further increase the already high level of debt (a total of 350% of GDP). Beijing has therefore only reacted with lukewarm measures, which are obviously not enough to stimulate the Chinese economy more sustainably.

Xin-Yao Ng, investment director for Asian equities at abrdn, said: "The accumulation of bad news in recent weeks raises questions about China's economy through 2024. Macro data has been weak. Major concerns about the collapse in property prices remain as sales figures are still very weak." Real estate prices in China recently fell more sharply than they have in eight years, while real estate sales in November fell by almost -30 compared to the same month last year. Since China's population is shrinking sharply, it is unclear how real estate prices, which are so important for the economy, can be stabilized again.

Current events in China suggest continued economic weakness that could impact the global market. Continued pressure on Chinese stocks and property values, as well as concerns about the Chinese economy's debt levels, could lead to further investor uncertainty and a decline in investment. This could also impact other industries closely linked to the Chinese market, bringing potential impacts on the prices of imported goods to consumers worldwide. It remains to be seen how the Chinese government will respond to the challenges and how the international markets will adapt to these developments. The situation must therefore continue to be monitored closely.