Next Week in China: 18-22 November 2024

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Major Data Releases:

18 November: Hong Kong to report October unemployment and underemployment statistics
20 November: China to report November 1-year and 5-year loan prime rates (LPR)
21 November: Hong Kong to report October consumer price index (CPI)
22 November: Macau to report October CPI
22 November: Taiwan to report October unemployment rate

After a huge week of significant political events in China, the upcoming week will see few macroeconomic data releases to guide the market.

China announced on 8 November a five-year fiscal package totalling RMB 10 trillion (USD 1.4 trillion) to address local government debt problems as it signalled possible additional economic support for the following year. For five consecutive years beginning 2024, RMB 800 billion (USD 110.7 billion) will be allocated annually specifically for debt resolution, totalling RMB 4 trillion for implicit debt replacement. The amount will be sourced from newly issued local government special bonds. Combined with the RMB 6-trillion debt limit approved by the Standing Committee of the National People’s Congress, this initiative directly increases available resources to address local government debt although it does not provide direct economic stimulus to households. After policy implementation, Chinese officials said the total implicit debt that local governments hold will decrease from RMB 14.3 trillion (USD 1.97 trillion) to RMB 2.3 trillion (USD 317.6 billion) by 2028, substantially easing debt resolution pressures.

Regarding the loan prime rate (LPR), we expect that both the 1-year and 5-year LPR quotes will remain unchanged for the rest of the year. In October, both rates were lowered by 25 basis points to 3.1 per cent and 3.6 per cent, respectively, resulting in a cumulative decrease of 60 basis points for the 5-year LPR year-to-date. Given the significant rate cut in September, the fourth quarter will serve as an observation period for the effect of such adjustment, making further rate cuts less likely. Additionally, banks’ net interest margins are currently at historical lows, and thus, limits the motivation to continue reducing LPR quote spreads. There may be some room for rate cuts in 2025.

As of Thursday, 14 November, Chinese equities have generally declined from the previous week. The MSCI China Index decreased by 5.8 per cent for the week, the Shanghai Composite Index decreased by 2.1 per cent, and the Shenzhen Component Index fell by 1.11 per cent. In contrast, the ChiNext Index rose by 0.58 per cent. In terms of market capitalization, large-cap stocks performed relatively better than small-cap and mid-cap stocks this week.

The fiscal stimulus package announced last Friday is in line with market expectations. After a weeks-long rally since the stimulus measures were first announced, it is expected that the sharp upward trend in Chinese stocks will come to an end, with a high probability of entering a consolidation phase.

This piece has been co-produced with Yiyi Capital Limited in Hong Kong, a China specialist and a part of a global financial services group.