China’s briefing on stimulus gets lukewarm investor reception

SINGAPORE (Reuters) – China said on Saturday it will “significantly increase” government debt issuance to offer subsidies to people with low incomes, support the property market and replenish state banks’ capital as it pushes to revive sputtering economic growth.

Finance Minister Lan Foan told a news conference there will be more “counter-cyclical measures” this year, but officials did not spell out the size of the fiscal stimulus, the key detail global financial markets are anxious to see.

Some investors fear China’s 2024 economic growth target and longer-term growth trajectory may be at risk if more aggressive support is not announced soon. Chinese shares have rallied strongly on hopes of bolder measures.

Here are some comments from investors and analysts on the press briefing from China’s finance ministry:

HUANG YAN, INVESTMENT MANAGER, PRIVATE FUND COMPANY SHANGHAI QIUYANG CAPITAL CO, SHANGHAI

“The strength of the announced fiscal stimulus plan is weaker than expected. There’s no timetable, no amount, no details of how the money will be spent. The market had been expecting trillions of yuan in fresh stimulus … but the briefing gave little good news, and limited room for imagination.

“If that’s what we have in terms of fiscal policies, the stock market bull run could run out of steam.”

RONG REN GOH, PORTFOLIO MANAGER, EASTSPRING INVESTMENTS, SINGAPORE

“Investors were hoping for fresh stimulus, accompanied by specific numbers, to be announced at the MOF presser, including the size of these commitments. From this perspective, it turned out to be somewhat of a damp squib given only vague guidance was provided.

“That said, there were meaningful measures announced. The MOF affirmed room for the central government to increase debt, more support for housing markets, and increased local government debt quotas to alleviate refinancing woes.

“However, with markets focused on ‘how much’ over ‘what’, they were invariably set up to be disappointed by this briefing.”

FRED NEUMANN, CHIEF ASIA ECONOMIST AT HSBC, HONG KONG

“By loosening restrictions on local governments to purchase excess housing inventory, officials are offering more support to the battered housing markets. While helpful, this does not offer a quick fix in itself to stabilise the housing market.

“By underlining their room for fiscal easing, officials are hinting that more could be done to support growth, but investors are left wondering how much extra money the government is willing to commit. For this, investors will need to be patient, with more concrete numbers likely to be unveiled at the end of the month, once the standing committee of the National People’s Congress has had an opportunity to review and vote on specific proposals.”

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ZHIWEI ZHANG, CHIEF ECONOMIST, PINPOINT ASSET MANAGEMENT

“The press conference didn’t give specific numbers on the fiscal stimulus. The key messages are that the central government has the capacity to issue more bonds and raise its fiscal deficit, and the central government plans to issue more bonds to help local governments to pay their debt.

“While the minister didn’t say explicitly that they will raise the fiscal deficit, I think his comments implies that it is possible the government will raise fiscal deficit above 3% for next year. These policies are in the right direction. To evaluate the impact of such policies on the macro outlook we need to wait for details of these policies, such as the size and composition.

“This will be the focus of the market in coming months.”

MATTHEW HAUPT, PORTFOLIO MANAGER, WILSON ASSET MANAGEMENT, SYDNEY

“Despite a lack of headline numbers the policy tools being implemented are increasing the odds of better outcomes within the Chinese economy than the continued negative sentiment about their prospects… I don’t think the news should be taken negatively as the intent and further measures flagged will be enough to move sentiment higher. Potentially some event money might be disappointed and remove some bets on the headline numbers not meeting high expectations but the more important capital flows might be encouraged by continuing efforts to stabilise the economy and keep growth at appropriate levels.”

HUANG XUEFENG, CREDIT RESEARCH DIRECTOR, SHANGHAI ANFANG PRIVATE FUND CO, SHANGHAI

“The focus seems to be around funding the fiscal gap and solving local government debt risks, which far undershoots expectations that had been priced into the recent stock market jump. Without arrangements targeting demand and investment, it’s hard to ease the deflationary pressure.”

VASU MENON, MANAGING DIRECTOR, INVESTMENT STRATEGY, OCBC, SINGAPORE

“China’s highly anticipated weekend press conference by the country’s Ministry of Finance was strong on determination but lacking in numerical details which is what the markets were looking for. The big bang fiscal stimulus that investors were hoping for to keep the stock market rally going did not come through.

“While the Chinese government’s determination to provide a backstop to the ailing property market and economy came through clearly, specific numbers with regards to initiatives announced was lacking. The lack of a big headline figure may also disappoint some investors who were hoping for the government to announce a sizeable 2 trillion yuan in fresh fiscal stimulus to shore up the economy and boost confidence.

“Nevertheless, investors will take some comfort from the Finance Minister’s pronouncement that the central government has room to increase debt and the deficit, and that it has other tools in consideration to use in future.”

ZHAOPENG XING, SENIOR CHINA STRATEGIST, ANZ, SHANGHAI

“MOF focused more on derisking local governments. It will likely add new quotas of treasury and local bonds. We expect a 10 trillion yuan ($1.42 trillion) implicit debt swap in the next few years. Official deficit and local bond quotas may both increase to 5 trillion yuan going forward. But it looks (to be) not much this year. We expect 1 trillion ultra-long treasury and 1 trillion local bonds to be announced by NPC this month end.”

BRUCE PANG, CHIEF ECONOMIST CHINA, JONES LANG LASALLE, HONG KONG

“The message released from today’s press conference is actually quite in line with the expectations of those familiar with China’s policy-making process and state structure. The officials have given answers to questions of ‘how’ but no details of ‘when’, yet.

“I will expect more details and number of the previewed fiscal stimulus to be published only after the upcoming meeting of the NPCSC to approve a plan to increase treasury issuance and provide a mid-year revision to the national budget.”

CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE

“There was mention of 2.3 trillion yuan and some details on local bond issuance that can support housing … but it stopped short of a big surprise factor. That said, we shouldn’t lose sight of the bigger picture and that is policymakers acknowledged the issues and are putting in genuine effort to tackle those issues.

“More time may be needed for more thought-out and targeted measures. But those measures also need to come fast as markets are eagerly waiting for them.”

TIANCHEN XU, SENIOR ECONOMIST, ECONOMIST INTELLIGENCE UNIT, BEIJING

“Our overall take is quite positive in that MOF is willing to tackle China’s many economic challenges by leveraging its borrowing room. The immediate benefits to the economy will be limited, as the MOF avoided large-scale direct cash handouts to households. However, its commitment to restoring local public finances through fiscal transfer and debt replacement is highly commendable.”

($1 = 7.0666 Chinese yuan)

(Reporting by Asia markets team and China economics team; compiled by Ankur Banerjee; Editing by Kim Coghill and Sam Holmes)