"Support Measures End" Chinese Stock Market Falls 15% in One Month

China Expected to Prioritize Debt Control Over Fiscal Expansion

[Image source=AP Yonhap News]

[Asia Economy Reporter Kim Suhwan] The CSI300 index, which tracks the performance of blue-chip stocks on the Shanghai Stock Exchange, has fallen by up to 15% since reaching its peak last month. This decline is interpreted as the stock market entering a correction phase following the Chinese government's recent announcement to reduce stimulus measures.

On the 24th (local time), the CSI300 index closed at 4,928.68, down 1.6% from the previous day. This marks a 15% drop within a month since it hit an all-time high of 5,807.72 on the 10th of last month.

According to Hong Kong's South China Morning Post (SCMP), the CSI300 index is now less than 2% away from breaking below its 200-day moving average, a key threshold distinguishing bull and bear markets. Bloomberg reported, "The decline in this Chinese stock index is significant compared to other countries," adding, "It has experienced a larger drop than the Nasdaq index in the U.S., which is currently considered to be in a correction phase."

The background to this stock weakness is analyzed as being due to China’s recent announcement to scale back stimulus policies, shifting focus from fiscal expansion to debt control measures. SCMP stated, "Over the next 12 months, China’s stock index is expected to underperform relative to indices in other countries," interpreting this as an effect of the Chinese government’s stimulus reduction.

Feichian Liu, a China specialist economist at NatWest Markets, analyzed, "China’s case clearly illustrates a scenario that could occur in other countries when stimulus measures are reduced."

Earlier this month, China’s top decision-making body, the National People’s Congress (NPC), decided to address concerns over asset bubbles and focus on debt control by setting the fiscal deficit ratio to GDP at 3.2%, down 0.4 percentage points from last year. Additionally, it was decided to reduce the issuance of local government bonds for infrastructure investment by 100 billion yuan compared to the previous year.

Experts believe that alongside China’s stimulus reduction stance, concerns over a tightening shift by the U.S. Federal Reserve (Fed) are creating market anxiety, which is expected to sustain the downward trend in stock prices. Credit Suisse recently issued a 'sell' recommendation on Chinese stocks, forecasting "a further significant decline in the Chinese stock market."

In the U.S., following the passage of a $1.9 trillion stimulus package in Congress, discussions are underway regarding an additional $3 trillion stimulus plan. Although the Fed intends to maintain an expansionary fiscal policy, rising inflation concerns have led investors to worry about a tightening shift by the Fed, resulting in a continued correction mainly in technology stocks.

This content was produced with the assistance of AI translation services.