Expectations are high that China would follow this week’s wide-ranging stimulus package by selling at least 1 trillion yuan (US$142 billion) of special treasury bonds and by lifting its budget deficit ratio, possibly in the next two to four weeks, analysts said.
Tuesday’s raft of interest rate cuts and monetary policy easing were seen as part of stimulus efforts to help meet China’s “around 5 per cent” economic growth target.
The moves were followed up on Thursday as China’s leaders stressed the need to strengthen “countercyclical” adjustments of fiscal and monetary policy, according to a readout from a Politburo meeting chaired by President Xi Jinping.
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Necessary fiscal spending should be guaranteed, added the readout, which said that China would make good use of its ultra-long special treasury bonds and local government special bonds to support investment.
And analysts believe China would need more fiscal power, given it is highly likely to suffer from a shortfall in its budget this year, with a property market crisis and local government debt woes having taken a toll on finances across many regions.
Zhang Ming, deputy director of the Institute of Finance and Banking at the Chinese Academy of Social Sciences, said the central government should issue 1 trillion of special treasury bonds in the fourth quarter.
He added that between 4 trillion yuan and 5 trillion yuan of special treasury bonds should be issued in 2025, with some being used to purchase property in less developed regions to be converted into affordable housing.
“Loose monetary policy still needs the support of loose fiscal policy,” Zhang said in a blog post on his WeChat social media account Thursday, adding that fiscal expansion must be implemented “as soon as possible”.
But if additional policy support is not implemented, Zhang added, China’s gross domestic product growth would fall back to around 4 to 4.5 per cent in 2025, with the downward pressure on overall prices set to persist.
The Ministry of Finance said last week that China’s fiscal revenue in the first eight months of 2024 had fallen by 2.6 per cent from a year earlier, but that fiscal expenditure had grown by 1.5 per cent.
Analysts at Tianfeng Securities believed the central government might consider selling at least 2 trillion yuan of additional treasury bonds, while also lifting its fiscal deficit target of 3 per cent of GDP to make up for this year’s budget shortfall.
China’s budget deficit could be around 3.1 trillion yuan, representing an increase of 2.3 trillion yuan from 2023, they estimated.
In October last year, the central government had taken the rare decision to issue 1 trillion yuan worth of additional treasury bonds.
The move lifted China’s official fiscal deficit ratio for 2023 to 3.8 per cent of GDP, above the 3 per cent ceiling the government had set earlier in the year.
The funds were allocated to local governments to support post-disaster recovery and reconstruction.
“In addition, it cannot be ruled out that to achieve the year-end economic growth [target], special treasury bonds or special purpose bonds quotas from next year will be brought forward,” Tianfeng Securities said on Tuesday.
Bank of America expected a fiscal package, which could potentially include measures to boost demand and investment, as well as further enhancement of social security, healthcare and childbirth, to come in the next two to four weeks.
The timing would be closer to the next meeting of China’s top legislative body, the National People’s Congress Standing Committee, that is scheduled in the second half of October, the US bank said on Wednesday.
But a large fiscal stimulus plan still might not fix China’s economic problems, which emanate from weak confidence in the public and private sectors, Bank of America added.
“If people only see downside risks but not upside risks, households and businesses are too cautious to work on productivity gains, innovation, or risk-taking, while local governments resort to performative actions without addressing the real problem in the economy,” the US bank said.
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