By Reshma Kapadia and Brian Swint

While Chinese stocks were soaring as Beijing ramped up its rhetoric about stimulus ahead of an important meeting of policymakers, again raising hopes for bigger measures to stabilize the world's second-largest economy, investors should lower their expectations.

The iShares MSCI China exchange-traded fund rose 9% to $52.15 on Monday. The American depositary receipts of Alibaba Group rose 9% to $94, while ADRs of its internet rival, PDD Holdings, climbed 12% to $112.43. Shares of NIO, the electric-vehicle company, surged almost 15% to $5.29.

China's Politburo, the Communist Party's top decision-making body, used stronger than anticipated language about the country's economy and potential efforts to boost growth. In a statement released ahead of the annual Central Economic Work Conference, it vowed to stabilize domestic demand and talked about "looser monetary tools" and "more active" measures. The overnight statement builds on a shift in officials' tone since September that illustrates an urgency about the sputtering economy, growing deflationary pressures, and increased concern about flagging consumer confidence and domestic demand. But the actual measures Beijing has rolled out haven't done much to turn around the economy.

Investors haven't been impressed, so gains in stocks have quickly faded away. There could be a repeat this week.

For starters, Beijing won't announce any meaty economic policy details until the annual National People's Congress in March. In the interim, authorities will likely tweak their plans as they assess what trade and other risks emerge as President-elect Donald Trump's administration takes office, according to 22V Research analyst Michael Hirson.

That was also the reading from the ground from Andy Rothman, chief investment strategist for Matthews Asia, who visited Beijing last week for meetings with government officials and academics. "Based on the conversations I had last week, the odds are low that the CEWC is going to deliver any concrete policy changes," Rothman says.

Concrete changes, specifically to fiscal policy, are what economists say it will take to get consumers and businesses willing to spend again. While China has decidedly shifted toward looser monetary policy for the first time in 14 years, Hirson says that was expected given the deflationary pressures the economy is facing.

More rate cuts are likely in the next year but Beijing will have to balance those reductions with the pressure they would put on the Chinese currency. If Beijing lowers rates too much, it runs the risk of capital leaving the country in search of better returns elsewhere. That could lead to financial instability.

So far, analysts don't see the types of consumer-oriented fiscal measures they think are needed for a sustainable economic recovery. Unlike in the early days of the 2008-2009 global financial crisis, when Rothman says Chinese officials came to meetings with black binders of projects intended to boost investment and get the economy going again, such a coordinated playbook has yet to emerge.

"I'm not getting a sense that exists yet. No one I'm speaking to is talking about that but between now and March I assume they will put something together and the language from the top leadership supports that," Rothman says.

The stock-price swings created as expectations have been raised repeatedly, and then dashed, have left a battered and under-owned market that is getting increased attention from investors, including those on Barron's international roundtable.

While China faces challenges including battered confidence both among consumers and in the private sector, broad investor wariness as the U.S.-China relationship fizzles, and the prospects for increased geopolitical strife, investors see Beijing as committed to putting a floor under the economy. That is enough for some contrarians to selectively pick up companies with long runways for growth ahead that would either be aided by geopolitical fallout or are far from it.

In the interim, though, signs of small improvements in consumer spending and the property market in October appear likely to be short-lived unless the government does more, Rothman says. While the prospects of 60% tariffs from the U.S. and increased restrictions from a second Trump administration have added urgency for Chinese officials to tackle their domestic economic problems, China's timetable may not line up with that of investors.

Write to Brian Swint at brian.swint@barrons.com

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December 09, 2024 14:14 ET (19:14 GMT)

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