SINGAPORE (Reuters) – China said on Saturday it would “significantly increase” government debt issuance to subsidize low-income earners, support the property market and replenish state-owned banks as it seeks to revive sluggish economic growth.
Finance Minister Lan Foan told a press conference that there would be more “anti-cyclical measures” this year, but officials did not provide details on the size of the fiscal adjustment, important information global financial markets have been craving.
Some investors fear China's 2024 economic growth target and its long-term growth trajectory could be at risk if aggressive support is not announced soon. Chinese stocks rallied sharply on hopes of stronger measures.
Here are some comments from investors and analysts at a press conference from China's Ministry of Finance:
HUANG YAN, INVESTMENT MANAGER, HEDGE FUND COMPANY SHANGHAI QIUYANG CAPITAL CO, SHANGHAI
“The strength of the announced financial plan is weaker than expected. There is no timetable, no money, no details on how the money will be spent. The market expected billions of yuan in new stimulus … but the forum did not give good news. , and limited space for thinking.
“If that's what we have in financial terms, the stock market bull run may end.”
RONG REN GOH, PORTFOLIO MANAGER, EASTSPRING INVESTMENTS, SINGAPORE
“Investors were hoping that there would be a new incentive, accompanied by certain numbers, to be announced in the MOF press, including the size of these commitments. In this view, it turned out that the wet squib was given only a vague direction.
“That said, there have been reasonable measures announced. The MOF has ensured room for central government to increase debt, support housing markets, and increase local government debt allocations to ease refinancing problems.
“However, with markets focusing on the 'money' over the 'what', they were always set up for disappointment on this topic.”
ZHIWEI ZHANG, ECONOMIST, REAL WORLD MANAGEMENT
“The press conference did not give exact numbers about fiscal stimulus. The important messages are that the central government has the power to issue more bonds and increase the fiscal deficit, and the central government plans to issue more bonds to help local governments pay their debt.
“Although the minister did not explicitly state that they will increase the deficit, I think his comments indicate that the government may increase the deficit to more than 3% next year. These policies are on the right track. The impact of these policies in the big picture, we need to wait for the details of these policies, such as size and composition.
“This will focus on the market in the coming months.”
HUANG XUEFENG, DIRECTOR OF CREDIT RESEARCH, SHANGHAI ANFANG PRIVATE FUND CO, SHANGHAI
“It seems that the focus is on financing the fiscal gap and solving the debt risk of the local government, which greatly exceeds the expectations that have been placed on the price of the stock market increase. Without preparations that focus on demand and investment, it is difficult to alleviate the pressure of inflation.”
VASU MENON, MANAGING DIRECTOR, INVESTMENT STRATEGY, OCBC, SINGAPORE
China's much-anticipated press conference by the country's Ministry of Finance was firm in its determination but lacked the numerical details that markets were looking for. The big bang financial stimulus that investors hoped would keep the stock market rally going has failed.
While the Chinese government's determination to provide support to the ailing real estate market and economy was clear, specific numbers regarding the announced plans were lacking. The lack of a big headline figure may disappoint some investors who had hoped the government would announce 2 trillion yuan to boost the economy and boost confidence.
However, investors will be comforted by the Finance Minister's announcement that the central government has room to increase the debt and deficit, and that it has other tools to use in the future. This gives hope that more can and will be done, although investors hoping for a big financial bazooka today will be disappointed.
ZHAOPENG XING, CHIEF MUNICIPALITY OF CHINA, ANZ, SHANGHAI
“The MOF is very focused on rescuing local governments. It will probably add new treasury bills and local bonds. We expect a debt swap of 10 trillion yuan ($1.42 trillion) in the next few years. The official deficit and the allocation of local bonds can both increase to 5 trillion yuan going forward. But it doesn't look like much. this year.
BRUCE PANG, CHIEF ECONOMIST, JONES LANG LASALLE, HONG KONG
“The message issued at today's press conference is actually in line with the expectations of those familiar with China's policy-making process and state structure. Officials have provided answers to the questions of 'how' but no details of 'when', yet.
“I will expect more details and the revised fiscal stimulus number to be published only after the next meeting of the NPCSC to approve the plan to increase the fiscal output and to provide a mid-year review of the national budget. And it would be reasonable and practical to keep room for policy changes to prepare for external shocks and uncertainties.”
CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE
“It has been said about 2.3 trillion yuan and the details of the issuance of local bonds that cannot support housing … but it has been very surprising. That said, we should not forget the big picture and that is what the policy makers are accepting. problems and make a real effort to solve those problems.
“More time may be needed for more thoughtful and targeted measures. But those measures also need to come quickly as markets eagerly await them. Over-expectation versus under-delivery can lead to disappointment and that can manifest itself in the Chinese markets.”
TIANCHEN XU, ECONOMICIST, ECONOMIST INTELLIGENCE UNIT, BEIJING
“Our overall take is positive because the MOF is willing to address many of China's economic challenges through its lending facility. The immediate benefits to the economy will be limited, as the MOF has avoided disbursing large sums of money directly to households. However, its commitment to restore local public finances through capital transfers and debt restructuring it is highly recommended.
“In the medium term, it will end the strong retrenchment of local governments and ease inflationary pressures. And as their financial situation stabilizes, local governments will be in a better position to support the economy by providing public services and tap into public funds.
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