China's Fiscal Stimulus Announcement Fails to Impress
China's Ministry of Finance's highly anticipated press conference on Saturday, where a major stimulus announcement was expected, turned out to be disappointing. While the ministry did announce plans to increase support for the economy, including more aid for the struggling property sector and indebted local governments, it failed to convince economists that they are doing enough to combat deflation.
No Concrete Figures Provided
Finance Minister Lan Fo’an did not provide a specific figure for China's fiscal stimulus, as many investors had anticipated. Instead, he indicated that details would be disclosed when China’s legislature convenes in the coming weeks. Lan did not announce any new stimulus on consumption or household subsidies. He mentioned that he would introduce further incremental measures in the near future but did not provide more details. He also suggested that some of the proposed measures would require approval by the NPC Standing Committee, which is expected to meet in the coming weeks.
Snapshot of the Stimulus Package
The measures announced by the Ministry of Finance include raising the government debt limit to accelerate local government debt resolution, increasing local government funding by RMB400bn through the unspent bond issuance quota accumulated from previous years, issuing additional central government special bonds to help large state-owned banks replenish their equity capital, allowing local government special bonds to be used for land acquisition and redevelopment, as well as the purchase of housing inventory, and increasing the transfer payment to students.
Goldman's View on the Announcement
Goldman Sachs views the Ministry of Finance meeting as largely in line with the market's wide-ranging expectations. They see the upside from clear forward guidance on multi-year fiscal expansion, a larger-scale local government debt resolution, and more central government debt financing. However, they also note the downside from a lack of specifics on the size of the stimulus and little detail on the RMB1tn CGSB to support consumption speculated by markets previously.
Reactions from Economists
Jacqueline Rong, chief China economist at BNP Paribas SA, commented that the policy to support consumption sounds quite weak. She added that it is still too early to call an imminent significant turnaround in deflationary pressure or a bottoming-out of the property market, which are the two key issues faced by the Chinese economy.
Future Prospects
Data on Sunday are expected to show consumer prices in September were stuck below 1% for a 19th straight month as factory-price deflation deepened, highlighting sluggish demand before the recent stimulus bonanza. Officials spoke little about deflation at the hourlong briefing on Saturday, which confirms that China is stuck in a debt-deflationary vortex.
Bottom Line
The recent developments in China's fiscal policy have left many economists and investors dissatisfied. The lack of concrete figures and specific details in the announcement has led to skepticism about the effectiveness of the proposed measures. However, others remain hopeful, pointing to the forward guidance and the potential for more measures in the future. What do you think about these developments? Share your thoughts and this article with your friends. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.
