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Markets shrug off China stimulus

April 2, 2014: 11:16 PM ET

Worrying economic data out of China had raised expectations in recent weeks that Beijing would respond with stimulus measures in an effort to stabilize growth.

The State Council obliged late Wednesday, announcing a slate of new measures including railway and urban redevelopment projects, along with a tax break for small businesses.

Market reaction on Thursday was muted. After an initial boost, the Shanghai Composite ended the day in negative territory. Hong Kong's Hang Seng was little changed.

There are a few likely explanations for the collective shrug from investors.

The new package is relatively small compared to many of Beijing's previous stimulus efforts. In response to the 2008 financial crisis, for example, China pumped almost $600 billion into the economy.

In addition, markets have likely priced in much of the stimulus impact. Railway projects are an old standby for Beijing, and something investors would have anticipated.

Related: Risks in focus on China's economy slows

Most economists think that after slower expansion in the first two quarters of 2014, China's economy will improve in the second half of the year. Beijing has set a full-year GDP growth target of 7.5%, although the leadership has indicated that it would also tolerate a slightly weaker performance.

If this stimulus package doesn't do the trick, HSBC economists said that China has plenty of other stimulus options it could pursue.

"We think Beijing still has other options in their toolkit, such as ... lowering the entry-barriers in various sectors, spending or incentives for environmental-protection, as well as more urban infrastructure," the economists wrote Thursday in a research note.

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