Chinese President Xi Jinping Sets A 'New Normal' In Response To Slowing Growth, Shares Rally

  @SnehaShankar30 on May 12 2014 4:30 AM
Chinese shares
The closing blue chip Hang Seng index is displayed inside the trading hall of the Hong Kong Stock Exchange on April 10, 2014. Reuters/Bobby Yip

Chinese President Xi Jinping's comments from Saturday during a tour of Henan province, when he called upon the world's second-largest economy to remain “cool-minded” and adapt to weakening growth, sent the nation's indexes soaring Monday.

China’s economic growth slowed to 7.4 percent in the most recent quarter after growing at 7.7 percent in the quarter before that, and while analysts expect that China might witness its weakest expansion since 1990, the nation's policy makers, in a bid to spur growth, have limited support for tax breaks, and poured money into infrastructure and housing projects.

“We must boost our confidence, adapt to the new normal condition based on the characteristics of China's economic growth in the current phase and stay cool-minded,” Xi said, according to the state-run Xinhua news agency, adding that the government now needed to prevent risks and take “timely counter-measures to reduce potential negative effects.”

Wu Kan, a fund manager at Shanghai-based Dragon Life Insurance Co., said according to Bloomberg: “The announcement is good for the market in the medium and long term and raises the government’s attention to the stock market to the state level,” adding: “This will boost the confidence of the market.”

So far in 2014, China's trade has fallen by 0.5 percent even as the government has proposed to relax limits on foreign investment in locally listed companies, increase allowances for capital flow and develop tools to trade in commodities, according to Bloomberg.

"The basic conditions for sustaining the country's growth have not changed, so we should stick to the fundamental principle of seeking progresses while maintaining stability in economic work," Xi said, according to Xinhua, adding: "Equipment manufacturing is the backbone of a country's manufacturing industry, but weakness still exists in many aspects of China's equipment manufacturing."

The Shanghai Composite Index rose 2.08 percent while the Hang Seng China Enterprises Index climbed nearly 1.5 percent on Monday and the Hang Seng index gained 1.82 percent, while the MSCI Emerging Markets Index fell 0.14 percent at close.

“What is most interesting about the ‘new normal’ is the line on forward guidance,” Evan Lucas, a markets strategist at IG Ltd. in Melbourne, wrote in a report, according to Bloomberg, adding: “This is the clearest sign I have seen that a broad-base monetary stimulus to elevate the current slowdown will not eventuate.”

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