Chinese firms benefit from new incentives: Alibaba and JD.com set records
The Chinese government recently announced ambitious measures to support the domestic economy, which has been suffering from a prolonged downturn in real estate and weak consumer confidence. These new stimulus measures have significantly impacted tech giants Alibaba, JD.com and Meituan, which have seen their best trading days in years.
These government measures include interest rate cuts, liquidity injections into the banking system and other fiscal steps aimed at reviving the economy.
Shares of Chinese technology firms Alibaba Group $BABA, JD.com $JD and Meituanhave seen surprising gains in recent days as the Chinese government announced a series of stimulus measures to boost the economy. The three firms notched double-digit gains in trading on the Hong Kong bourse, with Meituan and JD.com posting more than 20% gains, while Alibaba improved 15% in two days.
The Chinese government surprised markets with the breadth and scope of its stimulus measures, which include support for the property sector, cash allowances for citizens facing economic hardship and increased social security for unemployed graduates. These measures have brought relief to concerns about high youth unemployment and a debt-laden property market, encouraging the growth of consumer and internet firms.
Share buybacks - Returns for shareholders of Chinese tech giants have outpaced global competition this year, with Alibaba's return reaching more than 8%, more than double that of any firm in the U.S. "Magnificent Seven" index. Although share buybacks initially appeared to be a defensive move in response to stock declines, they, along with new government measures, have contributed to a resurgence of interest in Chinese technology firms.
Major government measures:
China's central bank on Friday cut interest rates and released liquidity into the banking system in an effort to bring economic growth back to projected levels of around 5% for this year. The government is expected to announce further fiscal measures before the start of the week-long holiday on October 1.
According to Reuters, the mega-cities of Shanghai and Shenzhen plan to ease key restrictions on property purchases in the coming weeks, a move already taken by a number of smaller cities in an effort to ease the long-running property market crisis.
In addition, China plans to issue about 2 trillion yuan ($284.43 billion) worth of special sovereign bonds as part of a new fiscal stimulus package that could boost annual output by 0.4%, according to Capital Economics' chief Asia economist Mark Williams.
Deflation and housing market problems:
Despite these measures, the world's second-largest economy is facing severe deflationary pressures caused by a sharp decline in the property market and weak consumer confidence. This situation reveals China's over-reliance on exports, especially in an increasingly tense global trade situation. Recent economic data in recent months has fallen short of expectations, sparking concerns among economists that the growth target is at risk and that a longer-term structural downturn could occur.
The latest wave of stimulus measures includes a 50 basis point reduction in banks' reserve requirement ratios (RRRs), which will release 1 trillion yuan ($142.5 billion) into the banking system. This move was accompanied by a 20 basis point cut in the interest rate on the seven-day reverse repo rate to 1.50%.
Although China's central bank has hinted at the possibility of a further RRR cut later this year, investors are more focused on expected fiscal measures, which are expected to include increased subsidies for consumer goods and support for upgrading corporate equipment.
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Reuters Source.