The picture shows that in Beijing in 2021, China’s Ministry of Finance is refunding taxes and reducing fees to support economic growth.
Yan Cong | Bloomberg | Getty Images
Investors are on edge as Beijing prepares to roll out new policies over the weekend that could boost the economy.
China’s Finance Minister Lan Foding held a press conference at 10 a.m. local time on Saturday to introduce “increasing intensity” fiscal stimulus policies, State Council Information Office explain.
With Beijing facing the risk of missing its full-year 5% economic growth target, some analysts believe authorities are ready to unleash significant fiscal stimulus at the much-anticipated event, but others remain sceptical.
Investors are nervous
Investors had expected the new package to be The National Development and Reform Commission held a news conference on Tuesday shortly after markets reopened after a week-long holiday.
At that event, the NDC president pledged a series of actions to boost the economy. But Zheng Shanjie did not announce any new major stimulus plans.
The move frustrated investors and sent a long-running rally in mainland Chinese markets into several days of volatility.
With the second shot, the Chinese government has now realized that it is facing a “moment at all costs” and will take “all necessary measures to stop the economic bleeding and promote economic development,” said global chief economic officer Daniel Chen express.
Zhao said authorities may confirm this at a press conference on Saturday.
Ahead of the Golden Week holiday, Chinese officials launched a series of stimulus policies, including cutting interest rates, reducing bank cash reserve requirements, easing real estate purchase rules and providing liquidity support for the stock market.
Shanghai Composite Index
Many investors and analysts saw the move as a sign that Beijing was finally ready to take drastic action to revive its struggling economy amid a series of disappointing data and falling consumer confidence. At that time, China’s main stock index began to rise, rising more than 25% as investors cheered a series of stimulus measures.
Most economists expect some kind of additional stimulus, but there are many differing views on its size and the priorities of the package. Some have proposed a figure of 20,000 to 3 trillion yuan (equivalent to $282.8 billion to $424.2 billion), while others have suggested 10 trillion yuan ($1.4 trillion).
Chetan Ahya, chief Asia economist at Morgan Stanley, said in an interview with Street Signs Asia that the plan may focus on stimulating domestic demand, supporting bank recapitalization and local government debt restructuring.
He said consumer stimulus measures could target social welfare spending and aim to unlock more household savings. A small portion of the program could be dedicated to supporting consumer trade-in programs.
Economists at Morgan Stanley predicted in a note that China’s Ministry of Finance would unveil a modest supplementary fiscal package at a news conference, which they said was “a sign that Beijing’s plans earlier this week fell short of expectations.” The second time after that convinced the market to change”. Economists acknowledge, however, that expectations are high.
“A larger size and clear consumer stimulus component, or clear forward guidance on expansionary policy next year, would constitute a positive surprise,” Morgan Stanley economists wrote.
Forward guidance for 2025 is critical and we expect the deficit to widen by another $200 to $3 trillion, but the size is not expected to be announced before the end of 2024, they added.
On March 6, 2024, Chinese Finance Minister Lan Fo’an attended a press conference held during the second session of the 14th National People’s Congress in Beijing.
Wang Wei|AFP|Getty Images
in trillions
Morgan Stanley’s Aya said Beijing needs to announce 10 trillion yuan in fiscal stimulus measures, focusing on stimulating consumption and resolving large inventories in the real estate market.
“That’s not what we said they would do,” but they need something like that “to get the economy out of deflation and ultimately get investor confidence to continue to improve,” he continued.
Aya added that Beijing may be worried that a large economic stimulus package may send a signal to the public that there are more serious underlying economic problems, so they may gradually eliminate these problems through piecemeal announcements.
Lu Ting, chief economist at Nomura Securities, predicts that the Ministry of Finance will announce a package plan that will not exceed 3% of China’s GDP. In 2023, China’s GDP will grow by 5.2%, reaching 126 trillion yuan.
Lu said the Ministry of Finance may discuss raising funds through the issuance of government bonds, but specific figures may be announced at a meeting of the Standing Committee of the National People’s Congress later this month. The Standing Committee of the National People’s Congress is China’s highest legislative body.
Reuters reported in late September China plans to issue about 2 trillion yuan ($284.42 billion) worth of special sovereign bonds this year, of which 1 trillion yuan will be used mainly to restore domestic consumption and the other half to support local government debt problems.
Alpine Macro’s Zhao said a 2 trillion yuan bond issuance is unlikely to turn around the economy, and he believes the next stimulus package would need to account for about 4-5% of GDP to reverse sluggish consumer demand.
“The Chinese government has been backed into a corner and they are panicking. From a stock market perspective, these are good things,” he said, insisting that the Treasury Department will unveil a plan on Saturday that could be “enough to keep the economy going.” Hit bottom.
But a senior Chinese political figure warned that fiscal policy changes would require a lengthy legal process to be approved, dashing Zhao’s hopes.
Dong Yu, a former official of China’s Supreme Economic Council and current deputy director of the China Institute of Development Planning at Tsinghua University told local media in an article published on Thursday Trillions of dollars in fiscal stimulus will eventually arrive, but people need to “exercise some patience.”
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