Hong Kong and China Markets Rise on Stimulus Hopes

On Tuesday, 10 December, the Hong Kong 50 (HSI) and China A50 (CN) experienced an increase in value following a report from the Chinese government, which indicated its intention to support local economic growth with more proactive measures in the upcoming year.

Let’s take a closer look at the potential reasons behind ​this move, what it might mean for the Chinese economy and what traders should expect:

China’s Export Slowdown: A Sign of Economic Troubles?

China’s trade data for November 2024 has added to growing concerns about the health of its economy. Compared to the previous year, exports rose to $3.24 trillion (+5.4% in U.S. dollar terms) year-to-date, and imports increased to $2.36 trillion (+1.2%). 

However, the pace of export growth slowed sharply in November, rising only 6.7% in U.S. dollar terms year-on-year, compared to a 12.7% increase in October and well below the forecasted 8.5% growth. Meanwhile, imports experienced an unexpected 3.9% decline—the steepest drop since September 2023—defying expectations of a slight growth of +0.3%.

Exports have been one of the few consistent drivers of China’s economy amidst weak domestic consumption and an ongoing housing market slump. The slowdown in export growth in November, however, has raised alarms. Although some experts argue that this doesn’t signal the end of China’s recent export boom, it does highlight growing vulnerabilities. 

A key concern is the looming impact of U.S. tariffs, with President-elect Trump pledging to impose an additional 10% tariff on Chinese goods to pressure Beijing to combat fentanyl-related issues.

Although we expect these tariffs to reduce China’s export volumes by around 3%, their full impact might not become apparent until mid-2025. In the short term, the tariff threats might paradoxically boost exports as U.S. businesses rush to stockpile Chinese goods before the new tariffs take effect. This phenomenon, often referred to as "front-loading," could provide temporary relief for China’s export figures early next year.

On the import side, the 3.9% drop in November signals weak domestic demand and potentially cooling industrial activity. However, some analysts believe import volumes could rebound in the coming months as increased fiscal spending in China boosts demand for industrial commodities and raw materials. (Source: CNBC)

How Can China Revitalise Domestic Consumption?

China’s economy faces significant challenges as it grapples with a heavy reliance on manufacturing and exports, lacklustre domestic consumption, and a prolonged property market crisis that continues to erode consumer wealth. Despite being on track to meet its 2024 Gross Domestic Product (GDP) growth target of “around 5%,” Chinese officials are under pressure to address deep-rooted economic imbalances and revitalise stubbornly weak household demand.

To counter the economic slowdown, Chinese policymakers have introduced a series of stimulus measures in recent months. Since September, the government has cut interest rates, eased property purchase rules, injected liquidity into financial markets and unveiled a $1.4 trillion debt package.

At a Chinese Politburo meeting on Monday, 9 December, officials highlighted their intent to stabilise property and stock markets while strengthening "unconventional counter-cyclical" adjustments. For 2025, they plan to adopt “more proactive” fiscal policies and “moderately” looser monetary measures to boost domestic consumption.

Later this week (likely from 11–12 December), China’s annual Central Economic Work Conference will outline economic policies and priorities for 2025. Traders and market participants will closely monitor this event for insights into Beijing’s approach to tackling entrenched deflation and mitigating the impact of looming U.S. tariffs.

Revitalising domestic consumption will require more than just policy tweaks—it demands structural reforms to address deeper issues, including the widening income gap, a weakening labour market, and high household debt levels. Furthermore, the emphasis on stabilising local government debt risks diverting resources away from direct consumer-focused measures.

Conclusion

As the world’s second-largest economy, China’s trade trends carry significant implications for global markets and its performance in 2025 is likely to face mixed trends. 

Export growth could temporarily boost in early 2025 as U.S. importers continue front-loading ahead of the new tariffs. However, this momentum may falter in the second half of the year once the tariffs take full effect and U.S. demand potentially shifts to other markets. 

Imports, on the other hand, could gradually recover if government-led fiscal stimulus supports infrastructure projects and industrial activity. Still, domestic demand remains a wildcard as China’s economy grapples with structural issues that the country is trying to improve with its new stimulus package and monetary policy.

China’s ability to revitalise domestic consumption successfully will be critical for its economy and global markets that rely heavily on Chinese demand. Whether these measures can create lasting change remains to be seen. Traders, particularly those who trade the China A50 index or the Hang Seng index, should still brace for both volatility and opportunity as the world’s second-largest economy charts its course forward.