On October 12, at the State Council Information Office press conference, the Ministry of Finance made clear the central government's determination to leverage up, releasing strong bullish signals and providing key policy directions and approximate intensities for local debt resolution, real estate support, bank capital injections, which is beneficial for economic stability and expectation management.

Ping An Securities released a research report indicating that strengthening support for local governments to resolve debt risks is the highlight of this press conference.

Firstly, the "special refinancing bonds" arranged within the year still have issuance space of nearly 300 billion yuan. According to the press conference, the funds for local government debt restructuring arranged in 2024 have reached 1.2 trillion, with special refinancing bonds of around 400 billion to activate the quota. According to Enterprise Early Warning Statistics, as of October 12, the issuance scale of the "special newly added special bonds" this year is approximately 821 billion yuan, basically meeting the set target; the issuance scale of "special refinancing bonds" is about 113.3 billion yuan, with less than 300 billion yuan remaining to be issued this year.

Secondly, to support debt resolution, the local government debt ceiling will be raised once. Taking into account the existing hidden debt of local governments and the size of previous debt restructurings, it is estimated that the upper limit of the one-time increase in the local government debt ceiling in this round will be around 10 trillion yuan, lower than the 12.2 trillion from 2015 to 2018. Due to over half of the existing local government debt being resolved by the end of 2023, the remaining hidden debt balance to be resolved from 2024 to the end of 2027 is estimated to be between 10-15 trillion yuan. As for the lower limit, it is expected that the one-time adjustment of the local government debt ceiling will not be less than 5 trillion yuan. This is mainly based on the fact that since July 2023, the funds allocated for local government debt restructuring have reached 3.4 trillion, and the expression of "larger scale" and "the greatest support for debt restructuring introduced in recent years" at the press conference suggests a greater potential compared to previous efforts.

Thirdly, for example in 2023, grassroots "three guarantees" expenditures account for about 50% of available fiscal resources, and if other rigid expenditures are included, they make up about 80% of available fiscal resources, occupying a significant portion of local governments' resources. After significantly reducing the pressure of local debt, more resources can be freed up for economic development.

Asset Management Companies (AMCs) are non-banking financial institutions specialized in the acquisition, management, and disposal of non-performing assets.

In China, the development process of the AMC industry can be divided into three stages, and a diversified pattern of "5+2+Banks' AIC+Foreign-owned+Non-licensed institutions" has been formed.

According to the statistics from Huaxi Securities, as of June this year, China's AMC industry has formed a market structure consisting of 5 national institutions, 59 local institutions, 5 AICs, and N non-licensed institutions.

As of now, the mid-year work conferences of 5 national asset management companies including China Cinda, China Greatwall Technology Group, China Dongfang, China Galaxy Asset Management, and China Galaxy have concluded. These 5 AMCs summarized their work achievements in the first half of the year, and also made arrangements for the second half of the year. In the first half of this year, these 5 AMCs adhered to their main responsibilities and businesses, accelerated their business transformation, and continuously improved their capabilities. In the second half of the year, they will further strengthen their core businesses, play a greater role in preventing and resolving risks in key areas, and propel their high-quality development to a new level.

AMC related Hong Kong stocks:

China Cinda (01359), China Cinda Financial Assets (02799)