Stronger policies aim to boost domestic demand
In August, the Chinese equity market experienced a series of fluctuations, largely driven by weaker quarterly earnings reports from many companies. Additionally, the opening of closed-end funds for redemption triggered localised liquidity events. In terms of sectors, petrochemicals and coal showed relative resilience, whereas national defence, agriculture, beauty, construction materials, and steel faced the most adjustments. Nevertheless, some sectors still exhibited overall growth and marginal improvements in quarterly performance, such as agriculture, telecommunications, electronics, insurance, wind power, chemical materials, and industrial metals.
Key insights from the report include:
- China has accelerated the implementation of a series of measures aimed at expanding domestic demand.
- Summer cross-regional holiday travel increased by 3.7% year-on-year in July and August.
- The daily average retail sales of passenger cars achieved a year-on-year growth rate of 5%.
- SOEs outperformed in the first half of the year.
Acceleration of policy measures
On the policy front, since August, China has accelerated the implementation of a series of measures aimed at expanding domestic demand. The Ministry of Commerce and the State Council issued detailed policies regarding the trade-in of old vehicles, promoting high-quality service consumption and advancing a comprehensive green transformation.
Cities like Nanjing and Xiamen introduced expanded housing trade-in policies.
These allow homeowners to ‘trade in’ pre-owned residential properties as part-payment for a newer property. The scheme primarily involves government-designated agencies or real estate companies purchasing and replacing existing properties, often with subsidies, to assist homeowners in selling their old homes and upgrading to new houses. For the first time these are now also permitting trades between different cities.
On 30 August, the Ministry of Finance released its mid-year fiscal policy implementation report, outlining plans to coordinate the use of various fiscal and tax policy tools to intensify efforts in promoting large-scale equipment upgrades and trade-ins for consumer goods.
These actions align with broader reforms proposed at the Third Plenum Session, which we mentioned in last month’s update, including urbanisation, land, fiscal and tax systems, technological innovation, and high-level opening-up. The subsequent July Politburo meeting reaffirmed the 5% GDP growth target for 2024 and emphasised the need for stronger policies to boost domestic demand.
SOE outperformance and government support
The trend of SOEs outperforming has continued into the first half of this year. Both the government and affiliated entities have actively worked to support their share prices since the start of last year. .
This sustained performance shows the government’s commitment to stabilising key industries and hopes to maintain investor confidence in state-backed companies.
However, most fundamental active managers tend to avoid a large subset of these companies due to poor governance, and because they are not run to maximise shareholder value.
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