China’s Finance Minister, Lan Fo’an, hinted at the possibility of increasing the deficit during a press briefing on Saturday. He mentioned that there is room for a deficit increase, and discussions are ongoing regarding this matter. Economists have been advocating for additional fiscal support, but as of now, Beijing has not made any official announcements.
Leading up to the briefing, there were expectations among investors and analysts that China might unveil a significant stimulus package. Lan indicated that more stimulus measures are in the pipeline, and changes to debt or deficit policies could be implemented soon. However, the exact size and nature of these measures remain uncertain.
Zhiwei Zhang, the president, and chief economist at Pinpoint Asset Management, commented that the proposed policies are moving in the right direction. He highlighted the need for more details to assess their impact on the macro outlook, which will be a key focus for the market in the coming months.
The finance ministry also outlined policy measures aimed at addressing local government debt issues, stabilizing the real estate sector, and supporting employment. In terms of real estate, the ministry plans to allow local governments to use special bonds for land purchases and extend affordable housing subsidies to existing housing inventory.
While there have been calls to strengthen monetary and fiscal policy support, specific details have not been provided yet. Analysts have projected varying amounts for the required fiscal stimulus, with estimates ranging from 2 trillion yuan to over 10 trillion yuan. Ting Lu, the chief China economist at Nomura, emphasized the importance of how these funds are utilized, whether they focus on local government finances or boosting consumption.
China’s retail sales have shown modest growth recently, while the real estate market continues to struggle. With concerns about missing the annual GDP target, all eyes are on the upcoming release of third-quarter GDP data. Bruce Pang, the chief economist at JLL, expressed the need to retain some flexibility to deal with unexpected economic shocks.
Following a weeklong holiday, mainland Chinese stocks experienced volatility, with major indexes retreating to September levels after a stimulus-driven rally. The Chinese government had taken steps to boost the economy, including interest rate cuts and extending real estate support measures. However, more details are expected to be revealed during the parliamentary meeting later this month.
Overall, the Chinese government’s hints at increasing the deficit and implementing further stimulus measures reflect efforts to support economic growth amidst ongoing challenges in various sectors. The market awaits more concrete details and policies to gauge the potential impact on the economy in the coming months.
