Instant view: China’s briefing on stimulus gets lukewarm investor reception
SINGAPORE (Reuters) – China said on Saturday it will “significantly increase” government debt issuance to offer subsidies to people with low incomes, support the property market and replenish state banks’ capital as it pushes to revive sputtering economic growth.
Finance Minister Lan Foan told a news conference there will be more “counter-cyclical measures” this year, but officials did not provide details on the size of the fiscal stimulus being prepared, the key detail global financial markets have been thirsting for.
Some investors fear China’s 2024 economic growth target and its longer-term growth trajectory may be at risk if more aggressive support is not announced soon. Chinese shares have rallied strongly on hopes of bolder measures.
Here are some comments from investors and analysts on the press briefing 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’s no timetable, no amount, no details of how the money will be spent. The market had been expecting trillions of yuan in fresh stimulus … but the briefing gave little good news, and limited room for imagination.
“If that’s what we have in terms of fiscal policies, the stock market bull run could run out of steam.”
RONG REN GOH, PORTFOLIO MANAGER, EASTSPRING INVESTMENTS, SINGAPORE
“Investors were hoping for fresh stimulus, accompanied by specific numbers, to be announced at the MOF presser, including the size of these commitments. From this perspective, it turned out to be somewhat of a damp squib given only vague guidance was provided.
“That said, there were meaningful measures announced. The MOF affirmed room for the central government to increase debt, more support for housing markets, and increased local government debt quotas to alleviate refinancing woes.
“However, with markets focused on ‘how much’ over ‘what’, they were invariably set up to be disappointed by this briefing.”
ZHIWEI ZHANG, CHIEF ECONOMIST, PINPOINT ASSET MANAGEMENT
“The press conference didn’t give specific numbers on the fiscal stimulus. The key messages are that the central government has the capacity to issue more bonds and raise its fiscal deficit, and the central government plans to issue more bonds to help local governments to pay their debt.
“While the minister didn’t say explicitly that they will raise the fiscal deficit, I think his comments implies that it is possible the government will raise fiscal deficit above 3% for next year. These policies are in the right direction. To evaluate the impact of such policies on the macro outlook we need to wait for details of these policies, such as the size and composition.
“This will be the focus of the market in coming months.”
HUANG XUEFENG, CREDIT RESEARCH DIRECTOR, SHANGHAI ANFANG PRIVATE FUND CO, SHANGHAI
“The focus seems to be around funding the fiscal gap and solving local government debt risks, which far undershoots expectations that had been priced into the recent stock market jump. Without arrangements targeting demand and investment, it’s hard to ease the deflationary pressure.”
VASU MENON, MANAGING DIRECTOR, INVESTMENT STRATEGY, OCBC, SINGAPORE
China’s highly anticipated weekend press conference by the country’s Ministry of Finance was strong on determination but lacking in numerical details which is what the markets were looking for. The big bang fiscal stimulus that investors were hoping for to keep the stock market rally going did not come through.
While the Chinese government’s determination to provide a backstop to the ailing property market and economy came through clearly, specific numbers with regards to initiatives announced was lacking. The lack of a big headline figure may also disappoint some investors who were hoping for the government to announce a sizeable 2 trillion yuan in fresh fiscal stimulus to shore up the economy and boost confidence.
Nevertheless, investors will take some comfort from the Finance Minister’s pronouncement that the central government has room to increase debt and the deficit, and that it has other tools in consideration to use in future. This offers hope that more can and will be done, although investors hoping for a big bang fiscal bazooka today will probably be disappointed.
ZHAOPENG XING, SENIOR CHINA STRATEGIST, ANZ, SHANGHAI
“MOF focused more on derisking local governments. It will likely add new quotas of treasury and local bonds. We expect a 10 trillion yuan ($1.42 trillion) implicit debt swap in the next few years. Official deficit and local bond quotas may both increase to 5 trillion yuan going forward. But it looks (to be) not much this year. We expect 1 trillion ultra-long treasury and 1 trillion local bonds to be announced by NPC this month end.”
BRUCE PANG, CHIEF ECONOMIST CHINA, JONES LANG LASALLE, HONG KONG
“The message released from today’s press conference is actually quite in line with the expectations of those familiar with China’s policy-making process and state structure. The officials have given answers to questions of ‘how’ but no details of ‘when’, yet.
“I will expect more details and number of the previewed fiscal stimulus to be published only after the upcoming meeting of the NPCSC to approve a plan to increase treasury issuance and provide a mid-year revision to the national budget. And it would be reasonable and practical to keep room for policy manoeuvring to prepare for external shocks and uncertainties.”
CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE
“There was mention of 2.3 trillion yuan and some details on local bond issuance that can support housing … but it stopped short of a big surprise factor. That said, we shouldn’t lose sight of the bigger picture and that is policymakers acknowledged the issues and are putting in genuine effort to tackle those issues.
“More time may be needed for more thought-out and targeted measures. But those measures also need to come fast as markets are eagerly waiting for them. Over expectations vs under-delivery would result in disappointment and that can manifest itself into Chinese markets.”
TIANCHEN XU, SENIOR ECONOMIST, ECONOMIST INTELLIGENCE UNIT, BEIJING
“Our overall take is quite positive in that MOF is willing to tackle China’s many economic challenges by leveraging its borrowing room. The immediate benefits to the economy will be limited, as the MOF avoided large-scale direct cash handouts to households. However, its commitment to restoring local public finances through fiscal transfer and debt replacement is highly commendable.
“In the medium term, it will put an end to the aggressive deleveraging by local governments and ease the resulting deflationary pressure. And as their financial position stabilises, local governments will be better positioned to support the economy by providing public services and embark on public investments.
($1 = 7.0666 Chinese yuan renminbi)