China's Ministry of Finance Announces Fiscal Stimulus Policies

Over the weekend, China's Ministry of Finance (MoF) announced eagerly awaited fiscal stimulus measures designed to support the economy. While the signaling appears positive, analysts noted the absence of key details.

Key Announcements:

• The MoF plans to issue 400 billion yuan ($56 billion) in new local government bonds to boost regional spending.
• A one-off increase in debt quotas for local governments was mentioned, but specifics were not provided.
• Additionally, 2.3 trillion yuan remaining from previous local government bond issuances will be utilized in the coming months.

> “Although the specific new funding of this year seems to be only RMB 400bn, if the RMB 2.3 trn available resources can be fully used by end of 2024, this would be more and faster than we had assumed,” said UBS analysts.

Economic Growth Target:

• The measures, alongside support for the property market, could help achieve Beijing’s 5% annual growth target.
• Plans for new special central government bonds are also outlined, intended to inject capital into major state-run banks, though specifics were not disclosed.
• Contrary to expectations, the MoF did not reveal any plans to enhance private consumption, which is essential for recovery.

The lack of detailed plans might be because the MoF needs approval from the National People’s Congress (NPC), which is set to meet later in October. Analysts anticipate more clarity on the stimulus measures during this meeting.

> “The MoF is not in the capacity of announcing budget revisions before receiving greenlights from the NPC,” said BofA analysts.

Current Economic Context:

China is facing a prolonged economic downturn characterized by weak private spending and a struggling property market. Recent data shows a continued deflationary trend.

Despite various monetary stimulus efforts by Beijing, investors are advocating for more targeted fiscal measures, as emphasized in the MoF’s briefing. However, concerns about stretched government debt levels raise questions regarding the scope for further support.