Lan Fuan, Chinese Minister of Finance, center, speaks as Cheng Shanji, 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 Congress of Representatives. People in Beijing, China, on Wednesday, March 6, 2024.
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BEIJING — The central government has room to increase debt and deficits, Chinese Finance Minister Lan Fuan told reporters Saturday during a long-awaited news conference.
He stressed that the room for increasing the deficit is “fairly large,” but noted that such policies are still under discussion, according to a CNBC Chinese translation.
Economists insist that China needs additional financial support, but Beijing has not yet announced any support. In the days leading up to the press conference, many investors and analysts were hopeful that China was preparing to unveil a major new stimulus package.
Lan noted that the weekend conference was not the end, that more stimulus is on the way and that the debt or deficit changes that markets have been waiting for may come in the near future. It remains unclear whether the size of any of these incentives will meet market expectations, or how much will go directly toward consumption or real estate.
“These policies are moving in the right direction,” Qiu Zhang, president and chief economist at Pinpoint Asset Management, said in a note on Saturday. He added that more details are needed to assess the impact of such policies on the overall outlook, and “this will be the focus of market attention in the coming months.”
The Finance Ministry on Saturday also outlined policy measures focused on addressing local government debt problems, stabilizing real estate and supporting employment.
Regarding real estate, the Ministry of Finance will allow local governments to use special bonds to purchase land and allow affordable housing subsidies to be used on existing housing stock, rather than just new construction, Deputy Finance Minister Liao Min said at the same press conference. According to CNBC's translation into Chinese.
He added that the authorities are studying plans to reduce real estate taxes. He did not mention specific numbers and pointed out that supporting real estate requires multiple policies.
At a meeting in late September, led by Chinese President Xi Jinping, the authorities called for stronger monetary and fiscal policy support. But they did not clarify the details.
Analysts' expectations for 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 Bank, warned in a note on Thursday that any such stimulus would typically need approval from China's parliament, which is expected to meet later this month. He added that how any money is used is as important as how much is delivered – whether it is allocated solely to shore up the finances of struggling local governments or focused on boosting consumption.
Retail sales in China have registered only modest growth over the past few months, and the country's real estate slump shows little sign of turning.
GDP rose 5% in the first half of the year, raising concerns that China may not meet its full-year target of around 5%. All eyes are now on October 18, when the National Bureau of Statistics is scheduled to announce third-quarter GDP.
Bruce Pang, chief economist and head of research for Greater China at JLL, said he looked forward to announcing more details 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 week-long holiday, stocks in mainland China have been volatile all week, losing the stimulus-fueled uptrend. The declines returned major indices to levels seen in late September.
Stocks rose then — the CSI 300 had its best week since 2008 — as major policy announcements suggested the Chinese government was finally stepping in to stimulate slowing growth.
Just days after the Fed began its easing cycle, the People's Bank of China cut a few interest rates and extended existing mortgage support measures for two years. The People's Bank of China also launched a roughly $71 billion program that allows institutional investors to borrow money to invest in stocks.
The National Development and Reform Commission, the top economic planning agency, pledged in a rare press conference on Tuesday to accelerate the use of 200 billion yuan originally allocated for next year, mostly for investment projects. The NDRC has not announced additional incentives.
Saturday is a business day in China, but markets are closed.
