Minsheng Securities' research report states that the Ministry of Finance's press conference held today is "eagerly anticipated". Minsheng Securities believes that the "incremental" content focused on by the market is full of substantial information. Several unusual signals are particularly worth noting:
First, regarding the issue most concerning to the market's scale, the Ministry of Finance hinted at the "intensity" in several answers. For example, in terms of word frequency, "relatively large" was mentioned 7 times, "deficit" 4 times, and "debt issuance" 4 times. This is unusual compared to recent press conferences held by the Ministry of Finance. Therefore, we expect this round of incremental policies to be a large-scale plan for many years, and in terms of pace and scale, it will not "lag behind the curve."
Secondly, the logic behind the introduction of increments is to first repair the balance sheets of microeconomic entities, then focus on promoting consumer and investment. In particular, the Ministry of Finance emphasized the "proposed one-time increase in the debt ceiling of relatively large scale," as Minister Lan said, "it will greatly alleviate the pressure of local debt, freeing up more resources for economic development." The logic behind issuing special treasury bonds to supplement commercial bank capital is similar, that is, only when microeconomic entities no longer subtract on the assets and liabilities side, can more incremental policies achieve the effect of addition.
Thirdly, the "3% deficit ratio red line" is likely to become a thing of the past, allowing for imagination in future fiscal efforts. In recent years, except for major unexpected public health events such as the pandemic, China's targeted deficit ratio has not exceeded 3% even during the period of the U.S.-China trade disputes. However, at today's press conference, Minister Lan mentioned more than once that "the central government has significant room for debt issuance and deficit enhancement," indicating the central government's determination to leverage up in the future. From the deployment of the next steps at the Ministry of Finance, "improving resident income expectations to stimulate consumption potential" ranks ahead of "driving effective investment to expand domestic demand," showing that the future incremental space is being optimized and adjusted structurally.
Fourth, the coordinated advancement of fiscal and financial policies is continuing. This press conference specifically discussed how the fiscal policy supports banks and the real estate sector—in terms of financial support, it is achieved through debt issuance for injection, but what is different from the past is that issuing special treasury bonds to supplement capital for large state-owned commercial banks emphasizes "overall planning, phased implementation, and one policy for each institution," fully reflecting flexibility and differentiation. In supporting the real estate sector, further deployments were made regarding the "control of new housing increment, optimization of existing stock" as discussed at the September Political Bureau meeting. The incremental aspects of this round of policies mainly focus on local special bonds supporting land reserves and housing stockpiling, as well as studying the cancellation of value-added tax policies related to non-standard homes. To drive the real estate market to stabilize and prevent further decline, other ministries’ policies and additional efforts from the Ministry of Finance will still be needed in the future.
Looking ahead, the suspense of the scale of this round of incremental policies is expected to be resolved within the next two weeks. Just as Minister Lan hinted at in this press conference, the "comprehensive targeted incremental policy measures are already entering the decision-making process," which specifically refers to the National People's Congress Standing Committee meeting scheduled for late October, where a comprehensive scale on resolving local debt risks and special treasury bonds will surface. We believe it is also worth paying attention to whether signals will be given on expanding the central government's borrowing and deficit ratio space.
Risk warning: policies fall short of expectations in the future; unexpected changes in the domestic economic situation; unexpected changes in exports.
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