China says it has more fiscal stimulus tricks up its sleeve

How China's finance ministry plans to rescue the property market

Our briefing on key economic and financial developments in China as of Tuesday, 15 October, 2024:

• Despite some disappointment surrounding China’s fiscal package released over the weekend, the Ministry of Finance (MOF) says it still has far more measures up its sleeve to ensure GDP growth hits Beijing’s annual target.

• MOF has also unveiled a package of measures for arresting the decline in China’s long-faltering property market.

China has more fiscal policy measures up its sleeve - ample from for deficit increases: MOF

While much disappointment has attended Beijing's unveiling of a raft of new fiscal policy measures over the weekend, Chinese finance minister Lan Fo'an (蓝佛安) has taken pains to reassure markets that the authority is still in the process of further refining and expanding its stimulus plans.

"We are currently in the process of researching other policy tools, and the central finance ministry has considerable room for raising debt and increasing the deficit," Lan said at a press conference held on 12 October.

State-owned media has taken to referring to the fiscal stimulus measures already unveiled by China's Ministry of Finance (MOF) as "four arrows" (四箭齐发) - the same phrase used to refer to credit and monetary loosening measures recently launched by the Chinese central bank to target the property market.

MOF's "four arrows" thus far primarily involve adjustments to China's government debt, including:

1. Increasing support for the dissolution of local government debt risk. Expanding debt increase quotas, and supporting the dissolution of hidden local government. Local governments will be given more room fiscally to spur development and improve living standards. According to Lan, Beijing has already issued 400 billion yuan in debt quotas to local governments this year, in order to firm up their financial standing. Total transfer payments from central to local governments are set to exceed 10 trillion yuan in 2024.

2. Issuance of special treasuries. Supporting large-scale state-owned commercial banks to supplement their core tier-1 capital. Raising the risk resistance and credit extension capabilities of these banks, in order to better service the development of the real economy.

3. Reusage of tools including local government special bond and tax policies, to arrest the decline in the property market and restore it to stability.

4. Expanding efforts to support and protect living standards for disadvantaged demographics. Prior to the 1 October National Holiday, China already provided a one-time subsidy to economically disadvantaged groups. The next step will be to provide greater support to Chinese students, and increase overall consumption capacity. Lan pointed out that the central government has provided 66.7 billion yuan in employment assistance subsidies since the start of 2024.

Li Xuhong (李旭红), professor at the Beijing National Accounting Institute, said to Economic Information Daily that the measures should serve to indirectly boost Chinese domestic demand and overall growth, by shoring up the financial health of the banking sector and regional authorities.

"The use of large scale increases in debt quotas to support the resolution of local government debt will help those governments to dedicate more resources to expediting growth and supporting living standards," Li said.

"The issuance of special treasuries to supplement the core tier-1 capital of the big state-owned commercial banks will strengthen the stability of the banking system and its ability to provide credit, helping to better service the real economy.

"At the same time, the use of multiple fiscal tools to drive a recovery in the real estate market has the goal of stabilizing housing consumption, and expediting market recovery.

"Expanding the intensity of support for disadvantaged groups and students will help to raise overall consumption capability and social stability, in addition to directly raising living standards and educational opportunities."

How the finance ministry plans to rescue the Chinese property market

At a State Council press conference held on 12 October concerning China's new fiscal stimulus plans, the Ministry of Finance (MOF) also unveiled details on its proposals for stabilisation of the long-ailing Chinese property market.

MOF official Liao Min (廖岷) said the authority was "actively researching policy measures to stabilize the development of the property market," focusing in particular on three key areas:

1. Permitting the use of special bonds by local governments to finance the reaccumulation of idle land "This is of benefit to easing the liquidity and debt pressures of local governments and real estate enterprises," Liao said.

According to Liao, the chief consideration here is the large volume of idle, undeveloped land in many parts of the country. Local governments will be allowed to use special bonds to reacquire idle land under certain conditions.

Liao said the policy will enable adjustments to supply-demand relations on the land market, reduce idle land, and strengthen the ability to adjust land supply.

2. Supporting the purchase of existing homes by state-owned enterprises, optimising the supply of social housing.

Liao pointed out that there is still a large number of completed yet unsold housing inventory in China which can be converted into social housing.

MOF plans to adopt two main support measures in this regard: i) Use local government special bonds to fund the purchase of existing homes for conversion into social housing. ii) Change use of resettlement subsidies from the construction of new social housing to the purchase of existing homes.

"These two measures can both absorb existing commercial homes, expedite the balance of supply and demand on the housing market, and optimise social housing supply, satisfying the housing needs of a large volume of low and medium-income earners," Liao said.

3. Timely adjustments to tax policies Liao said the Communist Party has called for MOF to research new policies for either cancelling or reforming value-added taxes for standard and non-standard residences, a long with land taxes.