China - Fiscal support measures announced so far still “piecemeal”

China Macro: Following PBoC package of late September, all eyes are now on fiscal support

This morning, on the first day China’s markets were open again following the Golden Week national holiday, Beijing presented some more details on fiscal spending plans, that were already pre-announced without much detail following a Politburo meeting on 26 September. This pre-announcement followed two days after the launch of a monetary/financial support package by the PBoC on Tuesday 24 September, which consisted of a number of (still modest, but slightly larger than usual) policy rate and RRR cuts and measures to stabilise the property market and the stock market. These announcements quickly led to a sharp improvement in China’s stock markets, with the CSI-300 index surging by 25% between 23 September and the pre-holiday closure on 30 September, and the 10-year government bond yield rising by over 15bp to around 2.20%. That said, the general expectation including ours was for the PBoC measures to be followed by additional fiscal measures, to have a more lasting and meaningful impact on the economy (see our recent China coverage, Long-term industrial policy versus short-term demand management).

Just after the Golden Week holiday, NDRC was the first agency to present some details …

And indeed, China’s economic planning agency, the National Development and Reform Commission (NDRC), gave some more details about the fiscal spending plans in the pipeline this morning. NDRC chairman Zheng stated the authorities trust the annual economic and social development targets are within reach, although he added China is facing a more complex environment both at home and abroad. The measures presented basically imply a frontloading of public spending. It was announced that the central government will urge provinces to speed up with the issuance of CNY 290 bn (± EUR 37bn) in special local bonds (deadline 30 October), while expanding the sectors eligible for using the funds raised by these local bond sales and accelerating the use of these funds and the construction of related projects. This could imply that local governments will be allowed to start using these funds to buy homes from (distressed) developers, which would give more momentum to a property stabilisation plan initiated in May 2024. The government will also bring forward CNY 100bn (± 13bn) in public investment originally scheduled for 2025 to 2024. It was also reiterated that the government will raise direct support to special groups, such as low-income groups and new graduates.

… with the measures being announced today being quite piecemeal and underwhelming

The fiscal measures presented this morning look quite piecemeal, and so far do not include larger fiscal spending initiatives that were floating around over the past weeks, including potential capital injections of around CNY 1 trn (EUR 130bn) into the largest state banks to beef up lending and other similar-in-size spending initiatives directed at stabilising the property sector, supporting consumption directly, and sorting out problems at local governments. These measures allegedly would be financed by the issuance of ultra-long-term central government sovereign bonds, which Beijing already did a few times to finance fiscal spending and also illustrates the growing role of the central government in fiscal stimulus given debt constraints at many local governments. All in all, the measures presented by the NDRC were underwhelming compared to market expectations. For instance, today’s opening rally in the CSI300 index faded following the announcements, although the index still closed higher by 6% today compared to the previous closing on 30 September. Meanwhile, the Hong Kong Hang Seng index, which spiked by 27% following China’s stimulus announcements end-September, lost 9.4% today – equivalent to the gains seen during the Golden Week when China’s stock exchanges were closed.

Support measures so far are more about changing ‘balance of risks’ to growth forecasts

That said, it is still possible that other parts of the Chinese government, such as the Treasury, will present additional fiscal stimulus measures in the coming weeks. Beijing may also have decided to test the waters first (looking how for instance consumer confidence and spending, home sales and stock and bond markets develop after the measures presented so far). In fact, it is likely that the authorities want their actions to be supportive for the stock market, but at the same time would like to prevent extreme boom/bust patterns that we also have seen in similar episodes in the past (such as in 2014/15). What is more, they may finalise (part of) the fiscal spending plans after the outcome of the US elections (scheduled for 5 November) is known, with another Trump presidency potentially leading to an intensification of the US-China tariff war and more external headwinds. All in all, we still judge the support measures announced so far as something that will change the balance of risks to our growth forecasts in a positive way rather than being a ‘game changer’ in terms of raising growth forecasts. We will review our growth forecasts for 2024 (4.9%, just under the government’s 5% target) and 2025 (4.5%) after the publication of Q3-2024 GDP numbers, which is scheduled for 18 October.