China's attempts to boost its stock market over the weekend resulted in a brief rally that quickly fizzled out on Monday. The CSI 300 stock index initially jumped 5.5% but later pared gains to just 1.2%. This comes as global investors sold a net 8.2 billion yuan ($1.1 billion) of mainland stocks.
The Chinese government announced new initiatives to support its stock market, including reducing required collateral and cutting a tax on stock transactions in half. Additionally, officials asked mutual funds in the nation to stop net equity sales to boost the market.
Despite these measures, investor confidence in China's economy remains low. The nation has been experiencing a disappointing economic recovery since dialing back its zero-COVID policies, and demand has struggled to revive itself after being impacted by the pandemic. China's economy slipped into deflation this summer, and the country is also grappling with high youth unemployment, key demographic issues, and a significant amount of debt in its property sector.
Experts argue that these problems have been building for years, with China relying on short-term stimulus to mask long-term demand issues. Some suggest that China could be on the brink of a "lost decade" similar to Japan's economic struggles in the 1990s. This could lead to a debt deflation loop, where prices continue to decline, debt increases, and economic growth stagnates.
Overall, China's efforts to prop up its stock market have not been successful in instilling confidence among investors. The underlying issues in the country's economy, such as weak demand, high unemployment, and mounting debt, continue to hinder its recovery. The future of China's economy remains uncertain, and experts warn of potential long-term consequences if these problems persist.