In a dramatic turnaround, China’s stock market has surged to new heights, with the Hang Seng Index in Hong Kong soaring 13.8% since late September. The CSI 300, which tracks stocks on the Shenzhen and Shanghai exchanges, has seen an impressive 24% gain before the National Day holiday. This remarkable rally is reminiscent of the market’s performance in 2008, and it’s largely attributed to the Chinese government’s bold stimulus measures and policy commitments aimed at reviving the country’s post-pandemic economy and stabilizing its struggling property market.
The government’s swift action follows months of warnings from experts that more drastic policy support was needed to meet the official growth target of 5%. Ray Dalio, founder of Bridgewater Associates, has praised Beijing’s move, likening it to Mario Draghi’s 2012 pledge to resolve the European sovereign debt crisis. However, Dalio also cautioned that China still faces significant economic challenges and needs to take further action to fully address its woes.
Dalio has warned that China’s situation is comparable to Japan’s economic struggles in the 1990s, and that the country requires a complex and politically charged debt restructuring. He believes China is at a critical juncture, where it must choose between a “beautiful deleveraging” or risk falling into a prolonged period of economic stagnation.
One key advantage China has is that most of its bad debt is denominated in yuan, making it easier to restructure. Nevertheless, such a process will still be highly complex and politically sensitive, with significant implications for people’s wealth. Since late September, Beijing has implemented a range of measures to stimulate the economy, including interest rate cuts, reserve requirement ratio reductions, and statements supporting the property market. These moves have sparked optimism among investors, with some Chinese developers seeing gains of over 15%.
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