China Stock Turmoil 2015

Mainland Chinese investors bank on party boost for economy

Shanghai stock market bounces 3.3 per cent higher amid hopes for more official measures to lift the country's economy at key meeting

PUBLISHED : Tuesday, 13 October, 2015, 2:55am
UPDATED : Tuesday, 13 October, 2015, 2:55am

As the authorities on the mainland moved to project confidence in the country's economy and stock markets, investors yesterday picked up on the positive stance and bought shares to move the markets more than 3 per cent higher.

Hopes are high for more official measures to boost the country's economy after the Communist Party said it would be holding a key meeting from October 26 to 29 to map out the 13th five-year plan. The meeting comes as the nation's economic growth slows and speculation mounts over whether party elites will unveil new measures to boost growth or downgrade the official gross domestic product target, currently set at 7 per cent.

A Politburo statement said the plenum would develop a strategy for building a well-off society and set the direction for the nation's socioeconomic development.

Hong Hao, the chief economist at Bank of Communications, said the leadership's priorities were shifting away from numerical targets. "Although still scant in details, the new plan will place less emphasis on the magic number 7, and will continue to shift focus towards improving the quality of growth and common welfare," he said.

Downgrading the official target will entail some loss of face but the view that growth prospects are lower has become widely accepted.

"Since China has experienced high growth for the past five years, it will be able to achieve its goals with an average of 6.8 per cent growth over the next five years," said Huang Weiping, an economics professor at Renmin University in Beijing.

The authorities remain positive on their ability to manage the economy, with People's Bank of China deputy governor Yi Gang telling an International Monetary Fund-World Bank meeting the stock market's woes were "almost over", according to the China Securities Journal.

On Saturday, the central bank said it would expand a pilot scheme allowing financial institutions to accept credit assets as collateral for state loans, providing a boost to cash-hungry firms.

"The central bank still expects to stimulate the slowing economy by easing credit conditions, which will be viewed as a positive factor for markets in the short term," said Wang Chong, an analyst at Victory Securities.

Although the scope of the scheme remains limited, it was well received. The Shanghai market traded at its busiest in more than a month as its main index advanced 3.28 per cent yesterday, a seven-week high, taking its gains since the "golden week" break to 7.7 per cent. The Shenzhen market rose 4.18 per cent. Hong Kong's Hang Seng Index followed the mainland into positive territory, rising 1.21 per cent.

But analysts said the mini rally would not be sustained without significant policy support in the new five-year plan.

"Personally, I do not see much room for further growth in the share market," said Eric Wu, an analyst in Shanghai. "It is crucial to see if this meeting will break through the reform strategies laid out since the plenum in 2012."

Analysts at Shenwan Hongyuan Group highlighted key areas of reform expectation for investors in a research note.

"We need to see a more detailed ownership reform plan for the state-owned enterprises, or a tax-reduction plan for emerging industries. If neither of the two catalysts comes into being after the party plenum, the current rebound will be small in size and unsustainable," the note said.

Additional reporting by Laura He, Xie Yu, Cary Huang and Jun Mai