Lan Fo’an, China’s Finance Minister, center, speaks as Zheng Shanjie, chairman of the National Development and Reform Commission (NDRC), left, and Pan Gongsheng, governor of the People’s Bank of China (PBOC), listen during a press conference on the sidelines of the National People’s Congress in Beijing, China, on Wednesday, March 6, 2024.
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BEIJING – Chinese Finance Minister Lan Fo’an told reporters at a long-awaited news conference on Saturday that the central government has room to increase debt and deficit.
He emphasized that the room for a deficit increase is “quite high,” but noted that such policies are still under discussion, according to CNBC’s translation of the Chinese text.
Economists have insisted that China needs additional fiscal support, but Beijing has not yet announced it. In the days leading up to the briefing, many investors and analysts had hoped that China was preparing to unveil a major new stimulus package.
Lan indicated that the weekend briefing was not the end, that more stimulus is on the way and that the debt or deficit changes markets have been waiting for could come in the near future. It remains unclear whether the size of such a stimulus would meet market expectations, or how much would go directly to consumption or real estate.
“These policies are moving in the right direction,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in a note on Saturday. He added that more details are needed to evaluate the impact of such policies on the macroeconomic outlook, and “this will be the market’s focus in [the] coming months.”
The Treasury Department on Saturday also outlined policy measures aimed at tackling local governments’ debt problems, stabilizing real estate and supporting employment.
On real estate, the Ministry of Finance will allow local governments to use special bonds for land purchases and allow affordable housing subsidies to be used for existing housing stock, rather than just for new construction, Deputy Finance Minister Liao Min said at the same time press conference: according to CNBC’s translation from Chinese.
He added that authorities are considering plans to reduce property taxes. He did not provide specific figures, noting that supporting real estate would require multiple policies.
At a meeting in late September led by Chinese President Xi Jinping, authorities had called for strengthening monetary and fiscal policy support. But they haven’t laid out the details.
Analysts’ projections on the amount of fiscal stimulus needed range from about 2 trillion yuan ($283.1 billion) to more than 10 trillion yuan.
Ting Lu, chief China economist at Nomura, had warned in a note on Thursday that such stimulus measures typically require approval from China’s parliament, which is expected to convene later this month. He added that how the money is used is just as important as the amount raised – whether it is just to support struggling local government finances or whether it focuses on boosting consumption.
Chinese retail sales have grown only modestly in recent months, and the country’s real estate crisis shows little sign of reversing.
GDP rose 5% in the first half of the year, raising concerns that China could miss its full-year target of around 5%. All eyes are now on October 18, when the National Bureau of Statistics will release third quarter GDP.
Bruce Pang, chief economist and head of research for Greater China at JLL, said he looked forward to more details to be announced at a parliamentary meeting later this month. He added that “it would be reasonable and practical” to keep some dry powder in case of unexpected shocks.
After markets reopened on Tuesday after a weeklong holiday, stocks in mainland China turned volatile throughout the week as a stimulus-fueled rally lost steam. The declines brought the major indexes back to their levels at the end of September.
Stocks were rising at the time — the CSI 300 had its best week since 2008 — as major policy announcements signaled that the Chinese government was finally stepping in to boost slowing growth.
Just days after the Federal Reserve began its easing cycle, the People’s Bank of China cut some interest rates and extended existing support measures for the real estate sector by two years. The PBOC also launched one program of approximately $71 billion allowing institutional investors to borrow money to invest in shares.
The National Development and Reform Commission, the country’s top economic planning agency, pledged at a rare news conference on Tuesday to accelerate the use of the 200 billion yuan originally allocated for next year, mainly for investment projects. The NDRC has not announced any additional stimulus measures.
Saturday is a working day in China, but the markets are closed.