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Hong Kong stock market reacts sharply to China's 2024 economic agenda

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2024-03-06

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The sharp fall of the Hong Kong stock market reflects the reception of China's 2024 economic agenda by markets following its presentation on the opening day of the country’s National People’s Congress.

The Hang Seng Index ended down 2.6%, while MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.4%.

Despite supportive words for the policies from Beijing-approved government officials in Hong Kong, Chinese markets edged higher, with trading moves tightly controlled by the government to avoid sell-offs.

The policy outlines and targets for the coming year remained largely unchanged from previous years, drawing criticism for lacking innovation. A commentary described them as a rinse cycle of ideas.

The economic targets include a 3% consumer price inflation target, a 5% GDP growth target, and promises to address the property crisis by borrowing billions of yuan, especially for financially strapped provincial governments.

China aims to lower its fiscal budget to 3% of GDP, signaling a shift away from large fiscal stimulus measures, according to analysts.

The lack of radical changes in policy suggests a continued focus on stability in Chinese policymaking.

The negative market reaction contrasts sharply with the anticipation surrounding Fed Chair Jay Powell's testimony to the US Congress.

China's reluctance to entertain questions at the National People’s Congress reflects a broader trend of opacity in government communication, diminishing confidence in policy announcements.

Foreign skepticism persists regarding the effectiveness of certain policy measures, such as pledges to remove restrictions for foreign investment in manufacturing.

While the issuance of "ultra-long" special bonds for major projects aligns with President Xi’s self-reliance policy, questions remain about the distinction between stimulus packages and increased debt.

China's plans to issue additional bonds, including ultra-long special treasury bonds, aim to support key strategic projects and infrastructure development.

The economic targets for 2024 mirror those set for 2023, emphasizing the continuity of China's economic strategy.

The work report emphasizes the importance of high-quality development, risk prevention, and maintaining social stability, echoing longstanding priorities of the Communist Party of China.

Efforts to defuse risks from existing debts and crack down on illegal financial activities underscore China's commitment to financial stability.

Pledges to support real estate enterprises and address local government debt risks raise concerns about preferential treatment and accountability.

Overall, the market response underscores the need for more substantive reforms and greater transparency in China's economic policymaking.

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