China's finance minister hints at increasing deficit at highly anticipated briefing

BEIJING – China's Finance Minister Lan Fo'an told reporters on Saturday during a highly anticipated news conference that the central government has room to increase the debt and deficit.

He stressed that the scope for increasing the deficit is “quite large,” but noted that such measures are still being discussed, according to CNBC's Chinese translation.

Economists insist China needs additional fiscal support, but Beijing has yet to announce any. In the days leading up to the briefing, many investors and analysts had hoped that China was preparing to release a major new stimulus package.

Lan signaled that the weekend briefing was not the end, that more stimulus was on the way and that the debt or deficit changes that markets have been waiting for could happen in the near future. It remains unclear whether the size of such an incentive would be in line with market expectations or how much would flow directly into consumption or the real estate sector.

The Finance Ministry on Saturday also outlined policy measures focused on addressing local governments' debt problems, stabilizing real estate and boosting employment.

In real estate, the Ministry of Finance will allow local governments to use special bonds for land purchases and allow affordable housing subsidies to be used for existing housing stock rather than just new construction, Vice Finance Minister Liao Min said at the same news conference. according to CNBC's translation of the Chinese.

He added that authorities are considering plans to reduce property taxes. He did not give specific figures and pointed out that several policies are required to promote real estate.

“These measures are a step in the right direction,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in a note on Saturday. He added that more details are needed to assess the impact of such measures on the macroeconomic outlook and “this will be the focus of the market in the coming months.”

At a meeting at the end of September led by Chinese President Xi Jinping, the authorities called for greater monetary and fiscal policy support. But they didn't lay out the details.

Analysts' forecasts for how much fiscal stimulus will be needed range from about 2 trillion yuan ($283.1 billion) to more than 10 trillion yuan.

Ting Lu, chief China economist at Nomura, warned in a note on Thursday that such a stimulus would normally require approval from China's parliament, which is expected to meet later this month. He added that the way the funds are used is just as important as the amount of funding provided – whether it is just to shore up local governments' struggling finances or whether it is aimed at boosting of consumption.

China's retail sales have grown only moderately in recent months, and the country's real estate slump has shown little sign of turning around. GDP rose 5.3% in the first quarter and 4.7% in the second quarter of 2024, sparking fears that China could miss its full-year target of around 5%.

All eyes now turn to October 18, when the National Statistics Office will release third quarter GDP.

Bruce Pang, chief economist and head of research for Greater China at JLL, said he was waiting for more details to be announced at a parliamentary session later this month. He added: “It would be sensible and practical” to keep some dry powder in case of unexpected shocks.

After markets reopened on Tuesday following a week-long holiday, stocks in mainland China faltered over the week as a rally fueled by stimulus measures lost momentum. The declines resulted in major indices returning to late September levels.

At the time, stocks were rising – the CSI 300 had its best week since 2008 – as major policy announcements signaled that the Chinese government was finally stepping in to boost slowing growth.

Just days after the Federal Reserve began its easing cycle, the People's Bank of China cut some of its interest rates and extended existing housing support measures for two years. The PBOC also launched a roughly $71 billion program that allows institutional investors to borrow for stock investments.

The National Development and Reform Commission, the top economic planning agency, vowed in a rare news conference on Tuesday to use the 200 billion yuan originally set aside for next year more quickly, mostly for capital projects. The NDRC did not announce any additional incentives.

Saturday is a working day in China, but the markets are closed.

This story has been updated to include China's GDP numbers for the first and second quarters of 2024.