Following on November 17's "China stimulus boosts domestic consumption as Trump tariffs loom".
From TriviumChina, November 15:
I’m starting to sense that a major macro-policy shift is underway in Beijing – but, as with all such adjustments, it will take a while to fully play out.
At least, that’s my take after having had a few days to digest the latest fiscal support package announced by the legislature (NPCSC) on Friday.
The shift: Central officials seem to be inching toward the realization that, to directly boost consumption, households need significant, ongoing fiscal support – not just in the near term but for years to come.
Yes, I know all the arguments that Chinese officials have been promising, for decades, to do more to support consumption and rebalance the economy away from investment and exports, with little to show for it.
But we are now operating under new economic and policy conditions.
- The former dictates that officials must take a fresh approach, while the latter is slowly unlocking the political will to do so.
But before I get into my thinking on this shift, it’s worth taking quick stock of the fiscal announcements the NPCSC and the finance ministry (MoF) made late last week.
The headline: The NPCSC approved RMB 10 trillion of new debt-raising capacity for local governments, to swap off-balance-sheet “hidden debt” for longer-dated, lower-cost, and on-balance-sheet bond issuance.
- The money will be allocated in two tranches – RMB 6 trillion raised over three years and RMB 4 trillion raised over five years.
- So that’s RMB 2.8 trillion per year from 2024 to 2026, and RMB 800 billion per year in 2027-2028.
- So far, we see no difference between the two tranches – as they are both allocated for local government debt swaps – so it’s unclear at this point why authorities broke them out.
Our take: While we got the headline number we wanted, we’re disappointed with the package overall.
- Our primary disappointment is that the funds are not being raised by the central government and transferred to the localities.
- It’s increasingly clear – both to us and seemingly to Beijing – that at some point the central government will have to undertake a local government bailout. But it seems officials aren’t ready for that yet.
- Our second disappointment is that there were not additional funds allocated for outright stimulus measures – whether for the property market, new infrastructure investment, or boosting short-term consumption.
- So we’d characterize this more as a local government debt relief package than true economic stimulus, per se.
At this point, it is clear that senior officials remain focused, first and foremost, on financial stability – and the vulnerabilities stemming from local governments’ inability to service their debt.
- The latest fiscal support package is primarily designed to target those most pressing vulnerabilities.
But rest assured, more direct stimulus is in the works – though it won’t be rolled out until 2025.
On the heels of the NPCSC’s debt swap announcement, Finance Minister Lan Fo’an held a press conference to reveal that more support is coming next year, including:...
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