China’s focus on rejuvenating its stock market is seen as a critical move to break the cycle of declining investments and consumption, says China Securities Journal.

In an editorial published Monday, the China Securities Journal underscored that restoring investor confidence and reviving the stock market are essential steps for stabilizing China’s economy.

By addressing market stagnation, the nation aims to reverse a cycle that has hampered both investments and consumer spending, further affecting broader economic recovery.

Stimulus measures propel China’s stock market surge

Last week, Chinese stocks saw their most significant surge since 2008, fueled by the government’s introduction of a comprehensive stimulus package.

Among the measures were interest rate cuts and a substantial $114 billion fund dedicated to boosting equity markets.

“The capital market is not only a ‘barometer’ of the macro economy but also a ‘thermometer’ of investor sentiment,” stated the editorial, pointing to the intertwined relationship between market health and investor outlook.

Revitalizing the stock market, according to the journal, is a critical step in bolstering investor confidence and improving the country’s economic outlook.

Long-standing market underperformanceChina’s stock market has lagged behind global markets in recent years, weighed down by various economic pressures, including a property sector in crisis, weak domestic consumption, and geopolitical tensions.

The China Securities Journal emphasized the importance of breaking this cycle: “Investors worried about internal and external risks, resulting in stock market sluggishness, which in turn sapped investor confidence in a negative loop.”

This downward spiral has made it difficult for private equity investors to exit, further stifling economic activity.

Looking ahead, the newspaper anticipates more policy announcements that will cement investor confidence and aid in stabilizing household finances, ultimately contributing to economic recovery.

As these measures take effect, they are expected to rejuvenate the broader economy and help reverse the negative trends seen in the stock market.

China’s manufacturing sector faces ongoing struggles

Despite these efforts, recent data shows that China’s economic challenges persist.

Factory activity contracted for the fifth consecutive month in September, while the services sector also recorded a sharp slowdown.

According to the National Bureau of Statistics (NBS), the purchasing managers’ index (PMI) for September rose slightly to 49.8 from 49.1 in August, still below the critical 50-point threshold that separates growth from contraction.

However, the figure did exceed forecasts of 49.5, marking the highest PMI reading in five months.

Aggressive stimulus aims to hit growth targets

In response to these struggles, Beijing has rolled out its most aggressive stimulus measures since the pandemic, which have already yielded impressive results in the stock market.

Last week’s rally marked the best performance for Chinese equities in nearly 16 years, and the momentum continued into Monday, with markets extending their gains.

As China continues to implement additional policy support, all eyes will be on whether these efforts can generate enough momentum to achieve its 2024 growth targets in the final quarter of the year.

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