China stocks flat, limp to quarterly drop, as stimulus falls short

Chinese blue chips remained near one-year lows on Wednesday, as Beijing's latest policy support measures fell short of expectations and dragged the benchmark index closer to its biggest quarterly decline in over four years. The economy, characterized by strong factory output and exports but weak domestic demand, has weighed on investor sentiment, while a drop in high-flying tech shares has dampened market momentum.

The CSI 300 index managed to rise 0.2% in early trading but remains stuck at a one-year low. It is currently on track for a 13% quarterly slump, the worst since the COVID-19 lockdowns of 2022. The Shanghai Composite index also rose 0.3% by midday, signaling a 6.2% quarterly fall - the largest in four years. Beijing announced a series of credit and mortgage support steps on Tuesday, but market participants believed these measures could only keep growth near the bottom of national targets rather than lift confidence or change investor sentiment.

The latest package is the largest in two years, but falls short of the broad easing announced in September 2024, which included rate cuts and stock market propping measures. Duncan Wrigley, chief China economist at Pantheon Macroeconomics, noted that the measures lack the "strong stimulus" required, as domestic demand is sluggish and China remains heavily reliant on exports.

Mortgage subsidies were introduced to support the housing market, but economic expert Charles Wang, chairman of Shenzhen Dragon Pacific Capital Management, warned that the government's stimulus package is inadequate. Liquidity in the Chinese market has thinned significantly, with daily turnover on Shanghai and Shenzhen exchanges falling to its lowest level since July 2025.

Tech shares, such as the CSI Semiconductor Index and the CSI AI Index, reacted negatively, with the former down more than 2% and on track for a 32% fall since June, and the latter declining 1.2% and heading for a 25% quarterly decline.