SINGAPORE (Reuters) – China said on Friday it will “Significantly increase” issuing government debt to offer subsidies to people with low incomes, support the property market and replenish the country’s banks’ capital as a push to revive sputtering economic growth.
Finance Minister Lan Foan told a press conference that there will be more “counter-cyclical measures” this year, but officials did not reveal the size of the fiscal stimulus, key details of which the global financial market is curious about.
Some investors fear China’s 2024 economic growth target and long-term growth trajectory may be at risk if more aggressive support is not announced soon. Chinese stocks have rallied strongly in anticipation of a bold move.
Here are some comments from investors and analysts about the press conference from China’s finance ministry:
HUANG YAN, INVESTMENT MANAGER, PRIVATE FUND COMPANY SHANGHAI QIUYANG CAPITAL CO, SHANGHAI
“The strength of the announced fiscal stimulus plan is weaker than expected. There is no timetable, no amount, no details on how the money will be spent. The market has expected trillions of yuan in fresh stimulus … , and limited room for imagination.
“If we have about fiscal policy, the stock market bulls can run out of steam.”
RONG REN GOH, PORTFOLIO MANAGER, EASTSPRING INVESTMENTS, SINGAPORE
“Investors expect a fresh stimulus, accompanied by specific numbers, which will be announced at the MOF presser, including the size of the commitment. From this perspective, it turns out to be a bit damp given only vague guidance.
“That said, there are important measures that have been announced. The MOF confirmed the room for the central government to increase debt, more support for the housing market, and increase the quota of local government debt to alleviate the problem of refinancing.
“However, with the market focused on ‘how much’ over ‘what’, they are always set to be disappointed by this briefing.”
FRED NEUMANN, HEAD OF ASIA ECONOMY AT HSBC, HONG KONG
“By loosening restrictions on local governments to buy excess housing inventory, officials offer more support for the battered housing market. While helpful, this does not offer a quick fix in itself to stabilize the housing market.
“By emphasizing the room for fiscal relaxation, the officials signaled that more can be done to support growth, but investors are still wondering how the extra money will be spent by the government. For this, investors must be patient, more concretely. numbers to be announced in end of the month, if the standing committee of the National People’s Congress has the opportunity to review and vote on certain proposals.
ZHIWEI ZHANG, CHIEF ECONOMIC, PINPOINT ASSET MANAGEMENT
“The press conference did not give specific numbers about the fiscal stimulus. The main message is that the central government has the capacity to issue more bonds and increase the fiscal deficit, and the central government plans to issue more bonds to help local governments pay their debts.
“While the minister did not say clearly that he will increase the fiscal deficit, I think that his comments indicate that the government will increase the fiscal deficit above 3% for next year. The policy is in the right direction. To evaluate the impact of such policy on the macro outlook we have to wait for the details of this policy, such as size and composition.
“This will be the focus of the market in the coming months.”
MATTHEW HAUPT, PORTFOLIO MANAGER, WILSON ASSET MANAGEMENT, SYDNEY
“Despite the lack of headline numbers, the policy tools implemented increase the likelihood of a better outcome in the Chinese economy than the persistent negative sentiment about the outlook … the marked step will be enough to move sentiment higher. level.”
HUANG XUEFENG, CREDIT RESEARCH DIRECTOR, SHANGHAI ANFANG PRIVATE FUND CO, SHANGHAI
“The focus seems to be around financing the fiscal gap and solving the risk of local government debt, which far undershoots the expectations that have been priced into the new stock market jump. Without arrangements targeting demand and investment, it is hard to ease deflationary pressure.”
VASU MENON, MANAGING DIRECTOR, INVESTMENT STRATEGY, OCBC, SINGAPORE
“China’s much-anticipated weekend press conference by the country’s Ministry of Finance was strong in its determination but lacked the details of the figures the market expected to come through.
“While the determination of the Chinese government to provide a backstop to the property market and the ailing economy is clearly visible, the specific number of initiatives announced is lacking. announced 2 trillion yuan in new fiscal stimulus to boost the economy and boost confidence.
“However, investors will take some comfort from the pronouncement of the Minister of Finance that the central government has room to increase debt and deficit, and that has other tools in view to use in the future.”
ZHAOPENG XING, CHINA SENIOR STRATEGY, ANZ, SHANGHAI
“MOF is more focused on local government derisking. It is likely to increase the new quota of treasury and local bonds. We expect 10 trillion yuan ($1.42 trillion) implicit swap debt in the next few years. The official deficit and local bond quota may increase to 5 trillion The yuan will advance, but it doesn’t look like much this year.
BRUCE PANG, CHIEF ECONOMIST CHINA, JONES LANG LASALLE, HONG KONG
“The message released from today’s press conference is in line with the expectations of those familiar with China’s policy-making process and state structure. Officials have provided answers to the ‘how’ question but no details on the ‘when’.
“I would expect more details and the number of fiscal stimulus previews to be published only after the upcoming NPCSC meeting to approve the plan to increase treasury issuance and provide a mid-year revision to the national budget.”
CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE
“There is mention of 2.3 trillion yuan and some details about the issuance of local bonds that can support housing … problems and put in original efforts to tackle that problem.
“More time may be needed for more thoughtful and targeted measures. But these measures must also be quick because the market is waiting.”
TIANCHEN XU, SENIOR ECONOMIC, ECONOMIC INTELLIGENCE UNIT, BEIJING
“Our overall findings are quite positive as the MOF is willing to address many of China’s economic challenges by using the loan room. The direct benefits to the economy will be limited, as the MOF avoids large-scale direct cash provision to households. commitment to restore local public finances through fiscal transfers and debt replacement very commendable.”
($1 = 7.0666 Chinese yuan)
(Reporting by Asia markets team and China economics team; Writing by Ankur Banerjee; Editing by Kim Coghill and Sam Holmes)
