By Clyde Russell
LAUNCESTON, Australia (Reuters) – Western and Chinese investors had mixed reactions to Beijing’s latest stimulus announcements, and both groups are likely to miss the point somewhat.
At what was a much-anticipated news conference on Saturday, the Finance Ministry said it was ready to increase spending significantly, but did not have a yuan figure in mind.
Western investors were reportedly disappointed that they did not receive a sum, while their Chinese counterparts felt Beijing remained determined to pull the world’s second-largest economy out of its growth funk.
The divergence can be seen in the price movements at the beginning of the month trading in copper, the key industrial metal used in construction and manufacturing.
Shanghai copper futures opened higher, gaining as much as 0.5 percent to a high of 77,700 yuan ($10,990) a metric ton on Monday.
Their London counterpart moved in the opposite direction in early trade, falling as much as 1.1% to $9,683 a tonne.
While not massive moves, they show that Chinese investors appeared ready to give Beijing the benefit of the doubt on future stimulus, while Western investors need to be convinced that enough will be done.
It’s worth taking a closer look at what was announced over the weekend, with three of the four measures aimed at easing the financial burden on local governments, the bodies responsible for around 80% of all government spending.
In fact, what Beijing is proposing is to refinance the mountains of local government debt and thereby allow these authorities to take out new loans and use the money to start construction and infrastructure projects.
Fixing the struggling housing sector is key to revitalizing China’s economy as it will boost consumer sentiment while boosting physical demand for commodities, particularly steel and copper, but also refined fuels such as diesel.
EARNINGS FROM THE PRICE OF THE CHAIN
Shanghai steel rebar futures responded positively to the weekend news, rising as much as 2.2 percent in Monday’s trade to 3,531 yuan a tonne.
Iron ore contracts on the Dalian Commodity Exchange rose as much as 3.2 percent to a daily high of 810 yuan, but futures on the Singapore Exchange rose 1.4 percent to $107.90.
Dalian iron ore futures have gained about 23 percent from a low of 658 yuan a tonne on Sept. 23, which was before the latest round of stimulus measures began.
In contrast, Singapore swaps, which are traded more by investors outside China, rose 16.5 percent.
In some ways, the gains are hard to justify on a fundamental basis, as China’s stimulus measures are unlikely to result in a significant increase in demand for the key steel raw material.
China’s steel mills are unlikely to increase output in the final quarter of 2024, given tight margins and still weak demand for steel.
Even if Beijing’s stimulus measures prove the antidote to the struggling property sector, demand is more likely to pick up only in the first half of 2025.
There are also substantial risks to China’s economy that are largely beyond Beijing’s control, such as a global trade war should Donald Trump be successful in his bid to win next month’s US presidential election .
What is clear is that China’s stimulus package is incomplete, and therefore price increases for some commodities on the country’s local exchanges remain largely driven by sentiment.
But China’s leaders also appear to be stepping up the rhetoric and coming closer to promising to do whatever it takes to jump-start the economy.
The trick for them will be to provide incentives that deliver both real-world success by growing business and winning over still-wary investors.
The opinions expressed here are those of the author, a Reuters columnist.
(Editing by Jacqueline Wong)
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