China’s government announced a 200 billion yuan ($28 billion) stimulus package aimed at local investment projects, but the news failed to excite investors, leading to a sharp sell-off in major tech stocks.
The National Development and Reform Commission (NDRC), China’s top planning agency, revealed the allocation at a press conference on Tuesday. “We are confident in achieving the annual economic and social development goals and tasks, and in maintaining sustained, stable and healthy economic and social development,” said Zheng Shanjie, the commission’s chairman, according to a CNN report.
China had set a 5% growth target in March, but recent economic data has raised concerns about the target’s achievability. The country is currently grappling with significant economic challenges, including a property crisis, weak consumer spending, and high youth unemployment.
To assist local governments dealing with significant debt burdens, Beijing will provide 100 billion yuan ($14 billion) from the central government’s budget, in addition to an extra 100 billion yuan for investment projects, Zheng stated.
The market’s reaction to the stimulus announcement was underwhelming. Mainland China’s CSI 300 index surged over 10% at the open on Tuesday following its return from the Golden Week holiday, but the index pared back gains to close 5.93% higher at 4,256.1. In Hong Kong, the Hang Seng Index initially plunged more than 10%, before moderating to a 9% loss by its final hour of trading.
Key Chinese tech stocks were hit hard: Alibaba Group Holding Ltd – ADR BABA fell 8.93% in pre-market trading. Tencent Holdings Ltd TCEHY dropped 8.32% to HK$ 438.60. JD.com Inc JD saw a sharp decline of 11.32% in pre-market trading, and Baidu Inc BIDU slipped 9.10% in pre-market trading.
The disappointing response highlights the concerns surrounding the effectiveness of the stimulus package in addressing the underlying economic challenges. Investors are seeking more concrete measures to tackle the property crisis and stimulate consumer spending.
China’s government has already implemented various measures to stimulate growth, including cutting interest rates and reducing bank reserve requirements. They have also announced cash handouts to disadvantaged citizens and subsidies for recent graduates struggling to find employment. However, these efforts have yet to significantly impact the overall economic outlook.
The market’s reaction to the stimulus package suggests that investors are seeking more decisive action from the Chinese government to address the country’s economic challenges. The coming months will be crucial in determining whether the government can effectively address these issues and restore investor confidence.
