China in Focus: Policy support ramping up
21 October 2024
Large fiscal space, but details yet to come through; stock market tools are now being implemented.
Private enterprise promotion law proposed with emphasis on creating fair competition to shore up confidence.
We see more fiscal stimulus forthcoming to help reach this year’s growth target.
GDP rose by 4.6% y-o-y in Q3 supported by an improvement in domestic activity in September. The key driving force has been the recent rollout of expanded consumer trade-ins and equipment upgrading programs since August, helping to lift growth of industrial production and retail sales both in y-o-y and m-o-m terms.
Retail sales grew by 3.2% y-o-y in September with home appliances (+20.5% y-o-y, from 3.4% in August) and autos (+0.4% y-o-y, from -7.3% in August) the key beneficiaries of the consumer trade-in program. Meanwhile, Industrial Production picked up 5.8% y-o-y as manufacturing sector purchases of equipment rose 16.4% year-to-date through September.
Property investment declined by 9.4% y-o-y in September, although the pace moderated from the 10.2% y-o-y fall in August. Recent policy easing measures in tier-1 cities have led to stronger sales, while mortgage payment adjustments and extended loan provisions should also provide support.
CPI inflation rose a modest 0.4% y-o-y in September, reflecting sluggish consumption trends in prior months. PPI deflation deepened to -2.8% y-o-y due to weak domestic activity, particularly from the property sector, as well as softer global commodity prices.
Export growth softened to 2.4% y-o-y in September (from 8.7% y-o-y in August) on the back of extreme weather (e.g. typhoons in the Yangtze River Delta), global shipping events (e.g. US shipping strike) and a high base. Imports, meanwhile, rose by a muted 0.3% y-o-y (from 0.5% y-o-y in August) given a less favourable base and ongoing weakness in domestic demand.
Since 24 September, many departments have held press conferences, with a package of incremental policies covering monetary support, stocks, property sector, private enterprises, people's livelihood, industry and other aspects. We detail key announcements below.
More support measures under discussion
The Ministry of Finance (MoF)’s 12 October press conference was a mixed result for markets. On the one hand, it fell short of announcing a specific fiscal amount but noted that additional bond issuance and fiscal deficit increases were under discussion. Indeed, Caixin reported on 13 October that policymakers are considering issuing RMB6trn of special government bonds to swap local government debt. The upcoming State Council executive meeting and the National People’s Congress Standing Committee meeting will be the key meetings to watch.
Central government may increase its debt limit
On the other hand, the meeting helped to address key issues facing China’s economy: resolving local government debt and stabilising the property market. The Finance Minister stated that “a significant one-time increase in the debt limit will be used for local government debt swaps”, the strongest measure to support resolving local government debt in recent years. There is also the possibility that central government debt could be used to alleviate some of the burden.
Meanwhile, proceeds from special local government bonds (SLGB) will be permitted to acquire land or unsold commercial housing for the first time to stabilize the housing market, which should help improve property developer liquidity and produce positive wealth effects to support consumption.
New policies aimed at boosting the property market
Officials from bodies including the Ministry of Housing and Urban and Rural Development, MoF and People’s Bank of China (PBoC) held a joint press conference on 17 October to introduce two key policies for the property sector: using cash resettlement to renovate 1 million homes in urban villages (i.e. compensating residents financially instead of providing alternative housing or physical relocation), and increasing lending for “whitelist” projects to RMB4trn by year end (from RMB2.23trn), to complete unfinished, partly-sold housing projects.
More policy support is likely on the way
Funding for the program is set to come from a mix of SLGB, policy bank loans and commercial bank loans. Indeed, MoF officials have noted that there is still RMB2.3trn of SLGB available to be used this year, some of which we think could go towards the housing sector. Overall, the policy stimulus measures announced since the end of September should provide tailwinds for growth, but we think that more fiscal support is needed, and a more specific package is likely on the way.
New laws being drafted to lift business confidence
Fiscal aside, other policies are rapidly being implemented to shore up the economy and markets. Examples include the PBoC’s new RMB500bn liquidity facility for the stock market, the State Administration for Market Regulation’s measures to strengthen financing support for small and medium enterprises, and the new private economy promotion law from Ministry of Justice and National Development and Reform Commission to address matters including fair competition, financing, and innovation, which is aimed at boosting market confidence.
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Notes
1 Source: Wind, HSBC
