Nation's policy response, its ability to boost economy help A-shares rebound

China's stock market withstood turbulence in the global financial market on Friday as Beijing acted swiftly to lift investors' confidence by announcing a set of new supportive policies including more liquidity injections to stabilize growth and boost consumption.

The benchmark Shanghai Composite Index opened lower, declining more than 4 percent during morning trading following the unprecedented plunge of global equities on Thursday. The index quickly rebounded and recovered part of its losses in afternoon trading, closing 1.23 percent down at 2887.43 points.

The morning sell-off in China's A-share market was triggered by the sharp decline in equities in the United States on Thursday. The Dow Jones Industrial Average plunged by nearly 10 percent, the biggest percentage drop since the 1987 market crash.

Trading in the US market was temporarily suspended as panic selling triggered automatic circuit breakers twice over the past week. The wild swings in the US market caused domino effects in European and Asian markets, which also nosedived in the past few days.

US equities rebounded on Friday after opening, with the three major indexes rising by more than 3 percent as of 10 am in New York.

Market jitters reflected US investors' frazzled nerves and concerns about the rising likelihood of an economic recession amid the novel coronavirus pneumonia pandemic and slumping oil prices, analysts said.

But in China's A-share market, fears appeared to be eased later on Friday and trading sentiment was bolstered by a fresh round of supportive policies from the central government to stabilize growth and consumption.

The People's Bank of China, the central bank, announced on Friday it will inject capital worth about 550 billion yuan ($78.7 billion) into the banking system by further reducing banks' reserve requirement ratios in a targeted approach. The RRR cuts, which will be effective on Monday, are aimed at keeping liquidity ample in the market and encouraging banks to expand credit to businesses.

Also on Friday, 23 Chinese ministries and government agencies released a joint policy statement to further stimulate consumption.

Analysts said the A-share market's ability to resist the global equities meltdown has to do with relatively stable market sentiment supported by China's effective policy response and its relative success in containing the epidemic. "We expect onshore and offshore China equities to continue to outperform Asia peers due to the effectiveness of China's policy response to the contagion and its ability to get the economy back to work," analysts at French bank Societe Generale wrote in a research note.

Chinese policymakers have adopted a wide range of policy tools to shore up the economy, including injecting more liquidity in the banking system, extending more affordable loans to businesses, implementing tax cuts and offering fiscal subsidies to affected companies and individuals as well as increasing investment in technology-enabled infrastructure and advanced medical facilities.

"As long as China can ensure production resumption and prevent imported infection cases from spreading, the resilience of its economy and markets will be evident," said Shao Yu, chief economist with Shanghai-based Orient Securities.

G20 finance ministers and central bank governors called on governments around the world to push policy coordination to contain the pandemic, reduce damage to economies and stabilize growth after a meeting on Thursday in Saudi Arabia.

The global economy has been in an environment of super low interest rates, which constrains central banks' ability to further cut rates to stimulate growth. But China's domestic interest rates have been relatively higher than other major economies, meaning that Beijing's policymakers still have room to manage its policies, analysts said.

China's containment of the outbreak ahead of other countries and higher interest rates than other major economies will give A-share assets a comparable advantage, helping the market remain relatively stable, Shao said. Yet the A-share market may still be affected by the pandemic, which could hurt corporate earnings via disruptions in global supply chains, he added.

Wu Chaoming, chief economist with Chasing Securities, said that the top priority of governments should be to bring the pandemic under control, which will help restore investor confidence and prevent asset prices from further plunging.

A stable Chinese economy will also help other countries ride out the hard times. One of the most important tasks for China at the moment is to tap into the huge potential of its domestic consumer market to stabilize the economy and jobs, Wu said.

Chen Jia contributed to this story.

Contact the writers at lixiang@chinadaily.com.cn