China hints at potential new stimulus

China Stimulus
China Stimulus

China’s finance minister hinted at increasing the national deficit at a highly anticipated briefing on Saturday.

Minister Lan Fo’an emphasized that the central government has considerable space for such measures, but clarified that these policies are still under discussion. Economists have pointed out the need for additional fiscal support, but Beijing has yet to announce any concrete plans.

Projections for the required stimulus vary significantly, ranging from 2 trillion yuan ($283.1 billion) to over 10 trillion yuan.

During the press briefing, Lan indicated that this announcement is not final and that further stimulus measures could be forthcoming. The extent and focus of any forthcoming stimulus remain unclear, particularly how much will be directed towards consumption or the struggling real estate sector.

The finance ministry also highlighted measures to address local government debt, stabilize real estate, and support employment.

Vice Minister of Finance Liao Min mentioned that local governments would be permitted to use special bonds for land purchases and offer affordable housing subsidies for existing inventory, not just new construction. He also mentioned potential plans to reduce real estate-related taxes, though specific figures were not provided.

Economists like Zhiwei Zhang of Pinpoint Asset Management have praised the direction of these policies but emphasized the need for more details to evaluate their full impact. In a recent meeting led by President Xi Jinping, authorities discussed the necessity of fiscal stimulus, though they did not provide specifics.

Potential new Chinese fiscal measures

Ting Lu, chief China economist at Nomura, noted that any significant stimulus would likely require approval from China’s parliament, which is scheduled to meet later this month. China’s economic indicators have shown mixed results. Retail sales have grown modestly, and the real estate market remains sluggish.

GDP growth of 5.3% in Q1 and 4.7% in Q2 of 2024 has raised concerns about meeting the full-year growth target of around 5%. Attention is now focused on October 18, when the National Bureau of Statistics will release Q3 GDP figures. Bruce Pang, chief economist at JLL, expressed anticipation for more detailed announcements at the upcoming parliamentary meeting, suggesting it is prudent to reserve some measures for potential future shocks.

Following a weeklong holiday, mainland Chinese stocks experienced volatility, partly influenced by stimulus-related optimism that faded as the week progressed. The CSI 300 index’s earlier gains receded back to levels seen in late September as investors looked for more definitive policy actions. The People’s Bank of China (PBOC) recently extended existing real estate support measures and introduced a new facility allowing institutional investors to borrow funds for stock investing.

Meanwhile, the National Development and Reform Commission announced plans to accelerate the use of 200 billion yuan allocated for investment projects next year. In summary, while signals of increased fiscal stimulus from China’s finance ministry have generated significant interest, the details and efficacy of such measures remain to be seen.

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