A big day for the Chinese economy, stock market and investors on Tuesday when the final round of interest rate cuts will happen.
The People’s Bank of China (PBoC), the country’s central bank, will cut the one-year prime lending rate of 3.6 per cent by 10 points and the five-year rate of 4.23 per cent by the same amount.
Tuesday's cuts were ordained last week when firstly the PBoC cut the reverse repo rate to 1.9 per cent from 2.0 per cent and then the one-year medium-term lending facility (MLF) rate by 10 basis points to 2.65 per cent from 2.75 per cent.
The rate cuts saw China’s CSI 300 index (which combines the top companies from the Shanghai and Shenzhen stock markets) rise 3.5 per cent last week, which lifted the index into the green for the year to date with a gain of 1.14 per cent.
In contrast the ASX 200 us up more than 4 per cent, but the S&P 500 has risen more than 15 per cent this year thanks to the Nasdaq, which has bounded ahead by more than 30 per cent.
The aim, quite clearly, will be to steady a unhappy economy and see if the recovery from the re-opening earlier in the year, can be reclaimed.
Judging by the way exports have faded, imports have fallen, unemployment among young people has worsened, production, investment and retail sales have stumbled lower and slower and a still moribund property sector, the Chinese economy will need everything that can be done to provide stimulus.
Friday saw a meeting of the executive of the State Council, the Chinese cabinet, which discussed policy measures aimed at promoting sustained economic recovery, with a particular emphasis on expanding demand, strengthening the "real economy", and "preventing and resolving risks in key areas.”
It was also the last State Council executive meeting chaired by Premier Li Qiang before he heads off for official visits to Germany and France starting from June 18 (his first overseas trip).
The meeting reportedly laid out policy priorities in the next stage to steady and further inject impetus into China's economic recovery.
It also comes after China on Thursday released weak economic data on retail sales, property prices, industrial production and urban investment for May.
Chinese economists believe that more stimulus measures are in the pipeline to further rev up the recovery momentum, in particular concerning the consumption of large commodities and expanding the construction of basic infrastructure, after the cuts in China's key interest rates.
Some western reports claimed that Beijing was considering issuing the equivalent of about US$140 billion in special treasury bonds, which would be used to finance growth initiatives, such as infrastructure projects, and indirectly help local governments pay down debt.
In addition, previous restrictions on second home purchases within smaller cities may be done away with, allowing more property market activity, according to the report. Previously, most homebuyers were limited to one property to prevent speculation
The official Global Times newspaper quoted Meng Wei, a spokesperson for the National Development and Reform Commission, as telling a news conference on Friday that the May economic figures have attracted attention and it is normal that temporary fluctuations emerge in certain sectors during the economic recovery, and the momentum for China's economic recovery remains strong and solid.
"Despite the current insufficient market demand and the need for a stronger internal driving force for economic recovery, these pressures and challenges will not change the positive momentum of our country's long-term economic growth," she said.
She said that going forward, policies will be promptly formulated to energize consumption, improve the consumption environment and unleash the potential of service consumption. In particular, policy efforts will be made to stabilise automobile sales.
Car sales, especially those of so-called new Energy Vehicles, is one of the few bright spots in China and there was a lot of talk on business and energy websites of government plans to bring back some of the purchase subsidies which ended on December 31.
Friday’s meeting reportedly approved an action plan to increase support for financing of technology-based enterprises. The plan emphasises the optimisation of financial institutions' products, markets, and service systems to meet the diverse needs of technology-based enterprises at different stages.
But as buzz wordy that is, it’s not going to drive retail sales, investment or fix the property sector.
But what it does sound like is an attempt by the government of President Xi Jinping to start building bridges to the tech sector that has been hammered hard by Xi and his officials for the past three years, crippling giants like Didi, Tencet and Alibaba, as well as humiliating Alibaba’s founder, Jack Ma, who is now living in exile in Japan.
That 38 per cent plus surge in the tech-heavy Nasdaq tells us where China’s market is missing its drive. It used to have a vibrant tech sector, but now they are mostly large, slow ghosts.
==========
Premier Li’s European trip will concentrate on Germany and seems to be tied to the attempts to help the Chinese economy.
A meeting between Li and a group of German and Chinese CEOs is scheduled for later Monday with the German companies all major investors in China.
Mercedes-Benz, SAP and Siemens Energy all confirmed that their CEOs would meet with the delegation. The CEO of Volkswagen division Audi will also be there.
A spokesperson for Mercedes-Benz, which counts China's Beijing Automotive Group Co Ltd and Geely Chairman Li Shufu as its two top shareholders, told Reuters topics for the meeting would include Mercedes' commitment to China and the ongoing opening of the Chinese market following the COVID-19 pandemic.
Siemens CEO Roland Busch, who also chairs the Asia-Pacific Committee of German business (APA), will also be present at an event with Li, German Chancellor Olaf Scholz and Economy Minister Robert Habeck scheduled for a separate meeting on June 20.
Andrew Small, a senior fellow at the German Marshall Fund's Asia program, said the question was whether Germany was using de-risking as a cover of essentially maintaining close business ties with China, except for a few areas such as raw materials.
BASF, Bayer, Infineon, Volkswagen and BMW, all companies with major business ties to China, declined to comment.
Siemens confirmed that its CEO would be present at the event on Tuesday in his capacity as APA chairman.
