Interpretation of China's New Fiscal Policy Measures: Supporting Economic Recovery and Risk Mitigation

On October 12, 2024, China's Minister of Finance held a press conference at the State Council Information Office, where he detailed a series of new policies aimed at "enhancing the counter-cyclical adjustment of fiscal policy and promoting high-quality economic development." This press conference not only injected confidence into the market but also provided solutions to the current economic challenges.

Minister Lan pointed out that the growth rate of fiscal revenue is below expectations, particularly in public finance and government funds, with total revenue likely to fall short of the initial budget by nearly 1.3 trillion yuan. To achieve budget balance, the Ministry of Finance proposed two main strategies:

Utilize various funds, including the budget stabilization fund and the state capital operation budget;

Consider expanding the deficit scale to better address the current fiscal gap.

During the press conference, Minister Lan emphasized several major fiscal policy measures that will directly impact local governments and the market:

Support for Local Government Debt Resolution: The Ministry of Finance plans to provide a debt limit of 1.2 trillion yuan to local governments to help resolve hidden debt issues. This policy is described as "the most substantial support measure in recent years," significantly alleviating the financial pressure on local governments and allowing them more resources for economic development.

Promoting Real Estate Market Stability: The meeting noted that allowing special bonds to be used for acquiring existing commercial housing as affordable housing will help address the current challenges faced by the real estate market. With this financial support, the real estate market is expected to gradually stabilize, and housing prices are likely to stop declining.

Capital Supplementation for Banks: The Ministry of Finance plans to issue special treasury bonds to support state-owned large commercial banks in replenishing their core tier-one capital. This initiative aims to enhance the banks' risk resistance capabilities and increase their lending capacity, thereby better serving local economies and businesses.

Increased Support for Key Groups: The Ministry will focus on vulnerable groups, including low-income individuals, students, and the elderly, further enhancing their financial subsidies and support levels, with the goal of boosting overall consumption capacity through these measures.

We believe that although some market views suggest that the current need for strong stimulus expectations may have fallen short, this press conference conveyed a clear signal: fiscal policy will enter a phase of sustained counter-cyclical efforts. If the economic fundamentals recover in the future, both the stock market and bond market are expected to exhibit a slow upward trend. Regarding Chinese government bonds, interest rates may gradually decline, leading to adjustments in the pricing of related assets; meanwhile, as policies are implemented, market confidence is expected to gradually recover, raising the overall market bottom.