China might need an additional 10 trillion yuan (US$1.4 trillion) to lift domestic consumption to restore investors’ confidence, according to HSBC Asset Management’s investment outlook for 2025.
With another trade war looming with the US and a property sector that is showing no signs of a revival, China will need to seek growth by boosting domestic demand, said Caroline Yu Maurer, head of China and core Asia equities.
She said 10 trillion yuan would be sufficient to stimulate consumer spending and restore investor confidence in Chinese stocks, adding that the cash injection does not have to happen in one go or in one year, but investors would like to see a path to get there.
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Since late September, Beijing has introduced a slew of measures to boost its economy, from cutting interest rates to lowering the down payment ratio for buying property. These efforts pushed Chinese stocks into a rally rarely seen in years.
However, the bull run soon lost steam, as the much-anticipated stimulus for the ailing property market and sluggish consumer spending failed to have the desired effect.
China’s benchmark CSI 300 Index has fallen by 10 per cent since a peak in mid-October, while the Hang Seng Index, which includes many big mainland Chinese companies, has lost nearly 17 per cent.
The counry is facing multiple challenges, including a slowing economy and US-China tensions. Washington’s ties with Beijing are expected to deteriorate following Donald Trump’s return to the White House.
“[For] China, next year is really a tug of war between the US trade war disruptions versus the domestic stimulus,” said Maurer. “That will basically create a bit more volatility and uncertainty.”
On Monday, Trump said he would impose an additional 10 per cent tariff, on top of all other tariffs on products from China. During his campaign, Trump said he would impose additional 60 per cent tariffs on all imports from China, and a 10 per cent to 20 per cent flat duty on all imports.
This could mean that the tariffs on China could be implemented soon after Trump’s new term starts in January, earlier than expected, according to a note from Nomura.
A potential “trade war 2.0” could force China to shift back to domestic demand, especially consumption, as exports and manufacturing, which China has been relying on for growth, will be hit, according to Macquarie analysts Larry Hu and Yuxiao Zhang.
“All in all, we believe that you’re going to see more stimulus coming in to support economic growth next year,” said HSBC’s Maurer. When that happens, stocks traded onshore in domestic-oriented sectors are likely to do better, she added.
While China’s retail sales rose in October, partly because of the week-long national day holiday, the People’s Bank of China’s survey for the second quarter conveyed a different story.
Some 62 per cent of respondents, a near historical high, said they would save more in the future, showing an unwillingness to spend. At the same time, only 13.3 per cent of those polled, a record low, said they would invest.
More from South China Morning Post:
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