Source: Citic Securities Research Author: Jiang Ya, Yang Qingpu, Xu Yingbo, Liao Yuan, Dan Zhuling Dubbed 618 grand promotion in 2024 has come to an end, and Citic Securities expects that the e-commerce large cap GMV during this period is expected to achieve low double-digit growth (+12% or so), continuing the positive trend since the beginning of the year and May. Structurally, it is judged that the growth center of content e-commerce platforms has moved downward, and the growth rate of shelf e-commerce platforms has rebounded under active investment. Platform-wise, Citic Securities judges that the core platform GMV growth rate during 618 is ranked as follows: TikTok > PDD Holdings > Tmall > JD.com.

On October 12, 2024, the State Council Information Office held a press conference, where Minister of Finance Lan Fo'an and others introduced the relevant situation of "increasing the intensity of fiscal counter-cyclical adjustments and promoting high-quality economic development."

The meeting introduced multiple specific and practical incremental policies, clearly addressing risks. At the same time, it pointed out that the central finance still has a considerable amount of borrowing space, conveying positive signals of fiscal policies, boosting market expectations.

Specifically, the following important deployments are worth attention:

1) Intensify debt resolution efforts, intending to substantially increase the debt ceiling in one go to replace the hidden debts of local governments.

2) Clearly support state-owned banks to supplement Tier 1 capital, enhancing the risk resistance capabilities of state-owned banks.

3) Introduce special bonds to recover idle land, land acquisition, and relevant tax policies, reflecting the determination of financial support to stabilize the real estate sector.

4) Consolidate grassroots "three guarantees" expenditures, further strengthen policies for student financial aid.

5) Ensuring people's well-being and promoting consumption are the focus of subsequent fiscal policies.

6) It is clarified that special bonds can be used to acquire existing residences for indemnificatory purposes, as well as to resolve the debt of existing government investment projects.

• The meeting conveys positive signals of fiscal policy, with short-term incremental policies clearly aimed at resolving risks and boosting the enthusiasm of various market entities. In the long term, it is clearly stated that the central government still has a large amount of debt and deficit increase space.

After the National Day holiday, market investors are highly concerned about the pace and effectiveness of the fiscal policies for the remainder of the year and next year. At this meeting, Finance Minister Lan Foa'an and three deputy ministers effectively responded to the issues of concern in the market with specific and practical risk policies and positive expectations, effectively boosting confidence in the capital markets.

On one hand, Minister Lan provided detailed explanations of policies that have entered the decision-making process, such as resolving local government debts, supplementing the core capital of banks, supporting the stabilization and recovery of the real estate sector, and increasing support for key vulnerable groups, in order to mobilize more resources for economic development through risk resolution for various market entities.

On the other hand, Minister Lan also clearly indicated that future policy tools are under research, emphasizing that the central government still has a large amount of debt and deficit increase space. We expect the economy and capital markets to stabilize and recover collectively in the future with the support of specific policies and optimistic expectations.

• Debt conversion policy is like timely rain, planning to increase a large-scale debt limit at one time to replace local government existing implicit debts.

Since the launch of the comprehensive debt conversion, the Ministry of Finance has arranged over 2.2 trillion yuan in local government bond quotas to support the resolution of existing debt risks in local, especially high-risk areas, and to clear overdue corporate accounts.

Since 2024, after completing the relevant procedures, the Ministry of Finance has arranged 1.2 trillion yuan in debt limits to support local debt conversion. Looking ahead, in addition to annually allocating a certain amount of bonds in the new special bond quotas specifically for supporting the resolution of debt from existing government investment projects, it plans to increase a large amount of debt limit at one time to replace local government existing implicit debts, further intensifying debt resolution efforts. This move will greatly reduce the pressure of local government debt, free up more resources for economic development, boost confidence of operational entities, and strengthen the foundation of the "three assurances" at the grassroots level.

• In recent years, with the increase in support from state-owned banks for the real economy, the asymmetric downward trend between the asset side yield and the liability side cost ratio has led to a narrowing net interest margin space, a decrease in endogenous capital supplementation capacity, and an urgent need to supplement bank capital through external channels.

Especially for the four major banks, although the core Tier 1 capital adequacy ratio still has a large gap from the regulatory red line, there is still a large funding gap to meet the TALC standard by 2025.

Due to quota restrictions on external channels such as perpetual bonds, state-owned banks are facing difficulties in issuing perpetual bonds on a large scale to supplement capital in the short term. This time, the Ministry of Finance explicitly proposed to support state-owned banks in supplementing Tier 1 capital, which can greatly enhance the risk resistance capability of state-owned banks, alleviate capital supplementation pressure, and enhance their ability to support and serve the real economy.

• Promoting the stabilization of the real estate market is one of the 4 major follow-up measures mentioned by the Ministry of Finance, reflecting the determination of the finance department to strengthen coordination and cooperation in stabilizing the real estate sector, involving specific measures related to the recovery of idle land by special bonds, land acquisition, and relevant tax policies.

Regarding specific incremental policies, the Ministry of Finance explicitly proposed three measures: first, supporting local governments to use special bonds to repurchase idle stock land that meets the conditions.

In fact, as early as the State Council policy briefing held on May 17 this year, Deputy Minister of Natural Resources Liu Guohong stated his readiness to introduce policies that explicitly support local governments in reclaiming idle land that companies are unable to continue developing at a reasonable price, or acquiring land that failed to sell in judicial and bankruptcy auctions.

We believe that this aligns with the 'strict control of incremental' approach proposed at the September Politburo meeting, which can reduce idle land, help ease the liquidity and debt pressure of local governments and real estate enterprises. Second, supporting the acquisition of existing housing, increasing the supply of indemnificatory housing. Specific sources of funding include special bonds and subsidies from indemnificatory housing projects.

Currently, the main source of funds for the acquisition of indemnificatory apartments is the 300 billion reloan special funds, this measure is expected to effectively alleviate the financial pressure on local governments for the acquisition of indemnificatory apartments, but the actual effect may still need further observation.

In 2024, the central finance will allocate a total of 70.78 billion yuan for the urban indemnificatory housing project, with a new special bond limit of 3.9 trillion yuan. The third is to promptly optimize and improve related tax policies, such as urgently studying and clarifying the value-added tax and land value-added tax policies related to the coordination of ordinary and non-ordinary residence standards.

This measure may help increase the activity of personal housing transactions, improve the willingness for housing upgrades, and ease the financial pressure on developers.

• The meeting requires further consolidation of grassroots 'three guarantees' expenditures, increased support for key groups, and further strengthening of educational assistance policies.

Affected by the slowdown in fiscal revenue growth and the decline in land transfer income, the pressure to ensure basic livelihoods, wages, and operations in certain local areas has increased. The Ministry of Finance has clearly put forward policies in three aspects at this meeting:

First, by increasing transfer payments, swapping local debts, expanding local tax sources, and appropriately expanding local tax management authority, comprehensively enhance local financial strength.

Second, actively build a stable long-term mechanism for 'three guarantees' expenditures. By solidifying local expenditure responsibilities, strengthening central monitoring of local budgets and 'three guarantees' funds throughout the process, timely capture risks.

Third, further increase support for key groups, double the allocation of national scholarships, raise award and assistance standards, and continuously increase financial support. Overall, we believe that the government's clear stance on 'three guarantees' safety net, coupled with the somewhat tight situation in grassroots expenditures, is expected to be properly alleviated in the future.

• Improving people's livelihoods and promoting consumption is one of the key focuses of subsequent fiscal policies. The emphasis is on increasing support for key groups, and in addition to ensuring the 'three guarantees' and increasing debt transformation, logically it also has spillover effects on consumption stimulation.

Minister Lan Fu'an proposed during the press conference to increase support for key groups, distributing one-off living allowances to disadvantaged groups before National Day, and the next step will further increase rewards and assistance for student groups, enhancing overall consumption capacity.

Given that the July and September meetings of the Central Political Bureau have both emphasized the goal of "benefiting people's livelihoods and promoting consumption," it is expected that other policies supporting key groups may also be gradually researched and introduced. In addition, the bottom-line guarantee measures and increased debt conversion can help ensure that grassroots wages are fully and timely paid, and logically, they may have certain spillover effects on promoting consumption.

• Reforms in the use and management of special bonds mainly focus on expanding the scope of usage and managing project asset ledgers, which can help alleviate cash flow pressures for local governments, some real estate enterprises, and construction companies, and promote the balance between government liabilities and project assets.

The press conference clearly stated that the usage of special bonds will be expanded, mainly for acquiring existing residences for affordable housing, as well as resolving debt issues from existing government investment projects. The former can help stabilize the real estate market, relieve cash flow pressures on real estate enterprises, and the latter can ease the insufficient funds for the continuation or settlement of old projects.

The press conference also proposed improving the full life cycle management of special bond borrowing and repayment, ensuring the balance between government liabilities and project assets, exploring early repayment of special bonds, and enhancing project and debt management efficiency.

Investment strategy:

Macroeconomic recovery falling below expectations; the timing or effectiveness of countercyclical policies may fall short of expectations; reforms may be slower to materialize than expected; geopolitical uncertainties exceeding expectations.

Editor/ping