China’s markets started the day with significant fluctuations as they returned from the national holiday. The markets were left disappointed as they had been expecting further fiscal support announcements during the early morning briefing by officials from the National Development and Reform Commission (NDRC), China's economic planning agency. This led to a wave of selling, particularly in Chinese markets and Asian currencies.

Before the holiday, China unveiled comprehensive stimulus packages, including interest rate adjustments and liquidity support. Due to slowing consumer spending and the deepening crisis in the real estate sector in China this year, the country’s 5% growth target had become increasingly unattainable. Therefore, the measures announced by the Chinese government in recent months aimed to boost consumer confidence, support the real estate market, and achieve the growth target.

Given that China is the world’s second-largest and largest economy in Asia, its economic performance is critical. Following recent policy measures, optimism regarding the Chinese economy has grown in global markets, boosting both global sentiment and the rise of Asian currencies.

The Asia Dollar Index, a measure of Asian currencies, surged to its highest levels since mid-2023 at the end of September. However, today, optimism has somewhat reversed after markets did not find the expected stimulus from the NDRC briefing.

Following the briefing, the Asia Dollar Index dropped by more than half a per cent. Oversea-Chinese Banking Corp.'s currency strategist expressed that while hopes were high for the announcement of another stimulus package, the market faced disappointment.

The lack of expected measures negatively impacted market sentiment, triggering a sell-off in currencies sensitive to the yuan, such as the Australian dollar, South Korean won, and Malaysian ringgit. Additionally, precious metals and oil also saw declines.

Key Takeaways from NDRC Briefing

NDRC Chairman Zheng Shanjie said they can achieve the annual economic and social development targets. Describing the Chinese economy as stable and making progress, Shanjie emphasized that although confidence remains high in reaching the 5% economic growth target, macroeconomic policies will be enhanced. The key points of the briefing were as follows:

Deploying the 100 billion yuan in public investment, initially budgeted for 2025, earlier than planned, Expand the scope of sectors allowed to issue special local bonds, Directing provinces to swiftly issue the 290 billion yuan in special bonds allocated for this year, Accelerating the use of special local bonds and the implementation of projects, Warning local governments against imposing excessive fines on companies. 

Economists who made predictions before the briefing anticipated expanding public spending as part of stimulus packages. However, most remarks summarized previous policies, and the markets did not find what they sought.

Moreover, although Chinese officials promised further support for growth, they indicated a reluctance to apply more stimulus. Shanjie noted that the Chinese economy faces increasing downward pressure and is confronting a complex domestic and international environment.

While markets have welcomed the latest stimulus measures, there is a growing consensus that their support will be temporary, and expectations for more substantial fiscal stimulus backed by real funds are rising.

The World Bank (WB) released a report emphasizing that while the recent measures may boost short-term growth, deeper structural reforms will be necessary for long-term growth. The WB also forecasts that China's growth will weaken further in 2025, adding additional pressure on regional economies.

As a result, the lack of measures addressing the long-term outlook, shifting trade flows, global policy uncertainty, and ongoing geopolitical risks could create headwinds for China's ability to overcome its economic challenges. This situation will likely exert pressure on Asian currencies, industrial and precious metals, and oil.