TMTPost -- The U.S.-listed shares sold out and China’s yuan hit the lowest more than a week against the U.S. dollar on Monday after Beijing’s pledge of big fiscal stimulus left out of key details on scale.

Credit：Xinhua News Agency

The Nasdaq Golden Dragon China Index, which tracks 65 China-exposed U.S.-listed companies, settled around 2.1% lower, underperforming the stock market as the benchmark S&P 500 inched nearly 0.8% higher Monday to a second straightful record close. The American depositary receipts (ADRs) of Fangdd Network Group Ltd., operator of a leading online real estate marketplace in China, plunged 17.2%. ADRs of Xpeng Inc. slumped about 9.8% and another Chinese electric vehicle (EV) maker Nio Inc. fell 7.2%. Shares of Temu owner PDD dropped 6% while its arch-rival Alibaba Group down 2.1%.  Exchange-trade funds (ETFs) tracking the investment in Chinese equities accordingly declined. The KraneShares CSI China Internet ETF and the Invesco China Technology ETF closed 2.7% and 2.9%, respectively.

The offshore Chinese yuan dipped to as low as 7.1001 per U.S. dollar Monday, for the first time falling below the 7.10 per dollar since October 4. The greenback jumped to a 10-week high the same day, extending a two-week rally after stronger-than-anticipated non-farm payrol growth in September increased bets on moderate interest rate cuts by the U.S. Federal Reserve.

Chinese shares fell and yuan weakened despite an announcement of upcoming significant increase in debt by China's Ministry of Finance at weekend.

China will introduce a package of targeted incremental fiscal policy measures in the near future to bolster the economy, Minister of Finance Lan Fo'an told a press conference on Saturday. The first part of the package is to increase the debt ceiling on a relatively large scale in a lump sum to replace existing hidden debts of local governments and help defuse their debt risks. Calling it "the strongest debt alleviation measure introduced in recent years," Lan said the move is "undoubtedly a timely policy rain."

The central finance has arranged a local government debt limit of over 2.2 trillion yuan in 2023, and an additional 1.2 trillion yuan in 2024, to support localities, especially high-risk areas, in resolving existing debt risks and clearing arrears owed to enterprises, Lan said.

The second part of the package is to issue special treasury bonds to support large state-owned commercial banks in replenishing the core tier-1 capital, with an aim to enhance the banks' risk resilience and lending capacity to better serve the development of the real economy, according to Lan. The third part targets the property market. China will apply a set of fiscal policy tools including local government special-purpose bonds, special funds and taxation policies to help stabilize the sector, said Lan. Local governments will be supported in using special-purpose bonds to reclaim eligible idle land or to expand land reserves if needed, said Liao Min, vice minister of finance, at the same press briefing.

Last but not the least important part of the packge is to further increase support for key groups. For instance, the country will raise the standards of financial aid for college students. China’s counter-cyclical adjustment in fiscal policy is not limited to the aforementioned four parts of package, which has just been in the decision-making process, and the government agency is still exploring other policy tools, Lan noted, adding that part of potential tools is the central government had a “fairly large” amount of space for increases in debt issuance and fiscal deficit.

Noting that China's general public budget revenue is expected to grow slower than anticipated, Lan said that the Chinese government "has sufficient resilience and can achieve a balanced budget and meet this year's budget targets by adopting comprehensive measures." The minister stressed raising fiscal revenue in accordance with laws and regulations, while avoiding excessive taxation to protect the rights and interests of business entities. At the same time, China needs to "maintain the necessary intensity of fiscal expenditure, ensure that key expenditures are fully funded, and play the role of fiscal counter-cyclical regulation effectively, in order to achieve the annual economic and social development goals," he said.

However, Lan and his collegues didn’t provide spedific figures about the scale of the fiscal stimulus package, which could prolong investors’ nervous wairt for a clearer policy roadmap until the next meeting of China’s Natiaonl People’s Congress (NPC) approving additional debt issuance. The date of China’s top legislature has not been made public yet.

 "The strength of the announced fiscal stimulus plan is weaker than expected. There's no timetable, no amount, no details of how the money will be spent. The market had been expecting trillions of yuan in fresh stimulus … but the briefing gave little good news, and limited room for imagination,” commented Huang Yan, investment manager at Shanghai Qiuyang Capital Co, a private fund cimpany in Shanghai."If that's what we have in terms of fiscal policies, the stock market bull run could run out of steam."

“While the minister didn't say explicitly that they will raise the fiscal deficit, I think his comments implies that it is possible the government will raise fiscal deficit above 3% for next year. These policies are in the right direction. To evaluate the impact of such policies on the macro outlook we need to wait for details of these policies, such as the size and composition.,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in a note. “this will be the focus of the market in [the] coming months.”