MoF Unveiled Incremental Fiscal Policies; Further Details and Stimulus Underway

By: Lizzy Liu, Jeff Huang

On 12 October, Ministry of Finance (MoF) held a press conference on the topic of “Intensifying countercyclical adjustment of fiscal policy to promote high-quality economic development”. During the conference, MOF Head Lan Fo’an acknowledged the challenges and expressed a strong commitment to support, with an incremental package of fiscal stimulus unveiled to stabilize the economy growth and contain risks. The measures are generally in line with the wide-ranking market expectations. While specific figures for the increased fiscal stimulus were still missing, further details are expected to be announced in the near future.

In this article, we will go through the key measures discussed during the meeting, their implications as well as key events to watch going forward.

Key Takeaways from MoF Meeting

We summarize the key measures of MoF meeting as below:

MOF Head Lan Fo’an acknowledged that some new issues and problems have emerged in the current economic landscape, and expected the official fiscal revenue and expenditure and fulfill the full-year budget targets through comprehensive policy measures.
On local government debt and financials, MoF plans to raise the government debt limit to accelerate the resolution of local government debt, with the size expected to be “the largest in recent years.” As a reference for comparison, Mr. Lan mentioned that the MOF approved more than Rmb2.2tn local government bond issuance quota in 2023 to support debt resolution and repay arrears to corporates, and another Rmb1.2tn in 2024. Central government will also increase local government funding by Rmb400bn through the unspent bond issuance quota accumulated from previous years.
On bank recapitalization, MoF will issue Central Government Special Bond (CGSB) to replenish Tier-1 capital for large SOE commercial banks, enhancing banks’ ability to resist risks and support credit and economy growth.
On property market, MoF allows local government special bonds (LGSB) to be used for land acquisitions and redevelopment, as well as housing inventory purchases and. In addition, more favourable tax policies related to property sector is under study.
On consumption and social welfare, improving livelihoods and promoting consumption will be key focuses of future fiscal policies. Government has provided one-off subsidies to impoverished populations, and will strengthen grassroots “three guarantees” spending, as well as increase transfer payment to students to improve consumption.

In addition, MoF provided solid forward guidance that central government still has relatively large room for debt expansion and fiscal deficit increases, with further incremental policy tools currently under research. More policy announcements are anticipated throughout 2024-2025.

Implications: Central Government’s Determination to Increase Spending Brings Upside Surprise

The measures align broadly with prevailing market expectations. Although specific figures for the increased fiscal stimulus have yet to be revealed, more details are anticipated to be disclosed soon. The exact number of extra CGSB quota could be announced and approved at the upcoming NPC standing committee meeting, which will be held in late Oct-early Nov, as a Rmb1.0trillion CGSB was approved during the NPC Standing Committee meeting in Oct 2023. Further disclosure on CGSB details (especially those related to consumption supports, if any) can provide better visibility and confidence for the market.

We recognize the government’s strong commitment to addressing current challenges, as demonstrated by Lan Fo’an’s candid acknowledgment of these issues following the Politburo’s call for action on September 26, with 4 key areas under focus – resolving local government debt, boosting core Tier-1 capital for large state-owned banks, stabilizing the housing market, and enhancing direct support for key demographic groups. Additionally, Lan emphasized that the fiscal space extends beyond these four areas, underscoring the central government’s substantial capacity for increased leverage. MoF has provided clear forward guidance on a multi-year fiscal expansion and more comprehensive stimulus plans with broadened use of proceeds and more tools under study. Notably, for the first time, the proceeds from LGSBs are now allowed to be used for land acquisition and the purchase of unsold commodity housing, bolstering efforts to stabilize the housing market.

Further Policy Rollouts and Implementations Remain as Key Catalysts

We are witnessing the gradual implementation of policies announced since 24 Sep. On 10 Oct, PBOC kicked off Rmb500bn swap facility for qualified non-bank FIs to purchase stocks. On 12 Oct, several major banks announced lowering of existing mortgage rate starting 25 Oct. We believe the series of monetary and fiscal policies announced by central government have been coordinated and forceful, and the ongoing policy rollouts and implementations should help to stabilize economic growth and support capital market performance.

We expect more details of incremental fiscal policy to roll out over the next six months. We believe there are 3 significant events worthing watching include: 1) The NPC Standing Committee meeting in late Oct to early Nov which will likely approve the one-time large increase of local government debt limit and CGSB to replenish CET1 capital ;2) the December Politburo Meeting, which may confirm the special treasury bonds for the upcoming year; 3) the “Two Sessions” on March 25, where next year’s deficit rate and total budget will be set.

Summary of Upcoming Key Macro Events

Date	Event
Coming Weeks	Ad hoc press conferences by other ministries
18 Oct 2024	Q3 GDP release
18-20 Oct 2024	Financial Street Forum (with PBOC, NFRA, CSRC and SAFE sessions)
Oct 2024	Politburo meeting (possibly on economic policies)
Late Oct – early Nov 2024	The NPC Standing Committee meeting
5 Nov 2024	US presidential election
Early to mid-Dec 2024	Politburo meeting on economic policies
Mid to late Dec 2024	Central Economic Work Conference
Mid-Jan 2024	Q4 and full-year 2024 GDP release
20 Jan 2025	US presidential inauguration
Jan-Feb 2025	2025 provincial-level “Two Sessions”
Early-to-mid Mar 2025	2025 “Two Sessions”

Source: Government websites, Goldman Sachs Global Investment Research, Mirae Asset, 13 Oct 2024.

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Authors: Zijun Liu and Yimin Huang (Licensed by the Securities and Futures Commission for Types 1 and 4 regulated activities under the Securities and Futures Ordinance). The authors and their associate(s) do not hold the securities/funds mentioned in the article.