China unveiled its economic plans for 2024, resulting in contrasting reactions among investors in different markets.
While domestic Chinese stocks showed optimism, surging in reaction to the government’s announcements, offshore Chinese equities available to foreign investors saw a significant downturn.
Beijing set a GDP growth goal of approximately 5%, along with a 3% cap on the consumer price index (CPI) inflation, aiming to create over 12 million new urban jobs and maintain an unemployment rate of 5.5%.
Disappointment in Fiscal Policy
Notably, officials announced a planned decrease in the on-budget deficit ratio to 3%, down from last year’s revised figure of 3.8%. This decision left foreign investors underwhelmed, as they expected more robust fiscal measures to drive recovery.
Despite the government’s plans to allocate RMB 3.9 trillion in local government special bonds—slightly up from RMB 3.8 trillion in 2023—and RMB 1 trillion in central government special bonds—a significant shift from none issued between 2021 and 2023—foreign sentiment remained largely unchanged.
Xin-Yao Ng, an investment director at Abrdn Asia Ltd., expressed that based on current information, government spending seems insufficient to provide a substantial economic boost, disappointing foreign investors.
Goldman Sachs indicates that policymakers are committed to prioritizing economic growth this year, evident from their ambitious growth target and unchanged CPI inflation target. However, further insights into the effective fiscal budget ratio and spending focus will come with the upcoming release of the fiscal budget report within the next 1-2 days.
Market Divide: Local vs. Foreign Sentiment
This cautious fiscal stance has led to divergent performances in the equity markets.
Mainland Chinese markets like the CSI 300 and the China A50 Index saw gains, reaching their highest levels since late November 2023.
In contrast, the Hang Seng Index, tracked by the iShares MSCI Hong Kong Index Fund (EWH) and heavily influenced by foreign participation, experienced its worst daily performance since mid-January 2024, dropping by 2.6% on Tuesday.
