Finance
China’s economy is waiting for stimulus. Here are the country’s plans
Passengers walk along the platform after disembarking from a train at Chongqing North Railway Station during the first day of the 2025 Spring Festival travel rush on Jan. 14, 2025.
Cheng Xin | Getty Images News | Getty Images
BEIJING — As promised government support is still to meaningfully kick in, China’s economy hasn’t yet seen the turnaround investors have been waiting for.
While policymakers have, since late September, cut interest rates and announced broad stimulus plans, details on highly anticipated fiscal support won’t likely come until an annual parliamentary meeting in March. Official GDP figures for 2024 are due Friday.
“China’s fiscal stimulus is not yet enough to address the drags on economic growth … We are cautious long term given China’s structural challenges,” BlackRock Investment Institute said in a weekly report Tuesday. The firm, which is modestly overweight Chinese stocks, indicated it was ready to buy more if the circumstances changed.
Of growing urgency in the meantime is the drop in domestic demand, and worries about deflation. Consumer prices barely rose in 2024, up by just 0.5% after excluding volatile food and energy prices. That’s the slowest rise in at least 10 years, according to records available on the Wind Information database.
“Consumer spending remains weak, foreign investment is declining, and some industries face growth pressure,” Yin Yong, Beijing city mayor, said Tuesday in an official annual report.
The capital city targets 2% consumer price inflation for 2025, and aims to bolster tech development. While nationwide economic goals won’t come out until March, senior economic and finance officials have told reporters in the last two weeks that fiscal support is in the works, and issuance of ultra-long bonds to spur consumption would exceed last year’s.
China’s announced stimulus will begin to take effect this year, but it will likely take time to see a significant impact, Mi Yang, head of research for north China at property consultancy JLL, told reporters in Beijing last week.
Pressure on the commercial property market will continue this year, and prices may accelerate their drop before recovering, he said.
Rents in Beijing for high-end offices, called Grade A, fell 16% in 2024 and are expected to drop by nearly 15% this year, with some rentals even nearing 2008 or 2009 levels, according to JLL.
New shopping centers in Beijing opened in 2024 with average occupancy rates of 72% — previously such malls would not be opened if the rate was below 75% or much closer to 100%, JLL said. Within a year, however, the new malls have seen occupancy rates reach 90%, the consultancy said.
Home appliances
Unlike the U.S. during the Covid-19 pandemic, China has not handed out cash to consumers. Instead, Chinese authorities in late July announced 150 billion yuan ($20.46 billion) in ultra-long bonds for trade-in subsidies and another 150 billion yuan for equipment upgrades.
China has already issued 81 billion yuan for this year’s trade-in program, officials said this month. It covers more home appliances, electric cars and an up to 15% discount on smartphones priced at 6,000 yuan or less.
Consumers who buy premium phones tend to upgrade and recycle their devices more frequently than buyers on the lower end of the market, indicating the government may want to encourage a new group to shorten their upgrade cycle, said Rex Chen, CFO of ATRenew, which operates stores for processing smartphones and other secondhand goods.
Chen told CNBC on Monday he expects the trade-in subsidies program can boost recycling transaction volumes of eligible products on the platform by at least 10 percentage points, up from 25% growth in 2024. He also expects the government to carry out a similar trade-in policy for the next few years.
However, it’s less clear whether the trade-in program alone can lead to a sustained recovery in consumer demand.
Nomura’s Chief China Economist Ting Lu said in a report Tuesday that he expects the sales boost to fade by the second half of this year, and that tepid new home sales will limit demand for home appliances.
Real estate
Real estate and related sectors such as construction once accounted for more than a quarter of China’s economy. When central authorities started cracking down on developers’ high debt levels in 2020, that had ripple effects on the economy, alongside the Covid-19 pandemic.
China shifted its stance on real estate in September following a high-level meeting led by President Xi Jinping that called for halting the sector’s decline.
Measures to prop up the sector include using a whitelist process to finish construction on the many apartments that have been sold but yet not been built due to developers’ financial constraints. New apartments in China are typically sold ahead of completion.
Jeremy Zook, lead analyst for China at Fitch Ratings, said the real estate market had yet not reached a bottom, and that authorities might provide more direct support. He pointed out that it was difficult for the economy to transition away from real estate, despite China’s wishes to reduce its reliance on the sector for growth.
The government’s latest measures have helped the broader stock market rally, and lifted sentiment slightly.
Sales of new homes in China’s largest cities over the last 30 days have surged by nearly 40% from a year ago, Goldman Sachs analysts said in a Jan. 5 report.
But they cautioned that high inventory levels in smaller cities indicate property prices “have further room to fall” and that homebuilding is “likely to remain depressed for years to come.”
In the relatively affluent city of Foshan — near Guangzhou city in southern China — housing inventory could take 20 months to clear in one district, and seven months in another district, according to a 2024 report from Beike Research Institute, a firm affiliated with a major housing sales platform in China.
The city overall saw floor space sold last year fall by 16% to the lowest in 10 years, the report said.
Geopolitical concerns
Complicating China’s economic challenges are tensions with the U.S. Similar to Washington’s export controls, Beijing has also made efforts to ensure national security by prioritizing domestic players in strategic sectors such as technology.
That stance has pressured an increasing number of European businesses in China to localize — despite added costs and reduced productivity — if they are to retain customers in the country, the EU Chamber of Commerce in China said in a report last week.
Official Chinese statements have also emphasized coupling security with development.
A slogan for part of Beijing’s efforts to support growth is an effort to build “security capabilities in key areas,” pointed out Yang Ping, director of the investment research institute within the National Development and Reform Commission. She was speaking at a press event Wednesday.
This year, “boosting consumption has been prioritized ahead of improving investment efficiency,” Yang said in Mandarin, translated by CNBC. “Expanding and boosting consumption are the main focus of this year’s policy adjustment.”
She dismissed concerns that the impact of trade-in subsidies on consumption would fade after an initial spike, and indicated more details would emerge after the March parliamentary meeting.
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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