Yuan gains as meeting sends policy signals

China's stock market and the Chinese yuan surged on Tuesday after a high-level meeting delivered strong policy signals of stepping up growth stabilization efforts and boosted investors' confidence in the country's economic recovery.

The combined impact of housing market regulation relaxation, further monetary easing and increased support for infrastructure and private investment in the rest of the year will help to address the prominent problem of insufficient demand, keeping China's economy well on track to achieve this year's growth target, experts said.

China's A-share market ended on an upbeat note on Tuesday as the benchmark Shanghai Composite Index jumped 2.13 percent — the biggest gain in about eight months — to close at 3231.52 points, led by stocks in the financial, property and liquor sectors.

Overseas investors snapped up 18.98 billion yuan ($2.66 billion) in A shares via the stock connect mechanisms with Hong Kong, the highest level since late 2021, according to market tracker Wind Info.

The optimism was also seen in the foreign exchange market, with the onshore yuan rising by 666 basis points against the US dollar to 7.1365 as of 4:30 pm on Tuesday.

Experts said the rebound shows that the meeting of the Political Bureau of the Communist Party of China Central Committee on Monday, a Party leadership meeting that charted the course for the Chinese economy in the second half, was well received by the market.

"What surprised the market the most was the clear signal of housing market regulation adjustments, as well as the expression of boosting investor confidence," said Meng Lei, China equity strategist at UBS Securities.

At least 16 A-share companies in the real estate industry surged and hit the daily upper limit on Tuesday, a day after the Party leadership meeting emphasized that real estate policies should be adjusted and optimized in a timely manner.

The meeting statement signaled a further easing of property policy, including relaxing purchase restrictions in second-tier and lower-tier cities, as well as reducing down payment and mortgage rates, which will help stabilize property development investment, a main drag of domestic demand, Meng said.

Recognizing insufficient domestic demand as one of the new challenges facing China's economy, the meeting demanded efforts to actively expand domestic demand and strengthen countercyclical regulation.

Su Jian, a professor at Peking University's School of Economics, said the meeting implied that boosting domestic demand has become the top policy priority in the short term as downward risks mount.

Fiscal policy is expected to ramp up support for infrastructure investment while monetary policy will further ease, perhaps in the form of further cutting interest rates to alleviate the cost pressures of enterprises and to encourage their investment activity, Su said.

The meeting has demanded faster issuance and use of local government special-purpose bonds, a key funding source of infrastructure investment, while calling for efforts to give play to the fundamental role of consumption in driving economic growth.

Su added that any nationwide consumption coupon program is unlikely in the second half as it could cost enormous government spending but reap unsustainable results.

Hong Hao, chief economist at GROW Investment Group, said, "As soon as the property sector turns around and starts showing signs of recovery, domestic demand will strengthen." He said he expects the country's full-year economic growth to reach about 5.5 percent or more.