In-Depth: Stimulus Exceeds Expectations, but What More Can Fiscal Policy Offer? (AI Translation)
Listen to the full version
文｜财新周刊 王石玉 武晓蒙 陈博 刘冉 王力为
By Caixin Weekly's Wang Shiyu, Wu Xiaomeng, Chen Bo, Liu Ran, Wang Liwei
临近国庆，9月26日召开的中央政治局会议引发国内外的高度关注，市场投资者据此调入期待模式。
As National Day approaches, the Politburo meeting held on September 26 has garnered significant attention both domestically and internationally, prompting market investors to switch into anticipation mode.
过去几年，月度召开的中央政治局会议以经济为主题的会议每年三到四次，4月、7月和12月相对确定，10月的会议一般是根据三季度经济数据部署年末工作，但近年来有所变化。这次会议提前以经济为主题，首次提出“正视困难、坚定信心”，与两个月前中央政治局会议提出“及早储备并适时推出一批增量政策举措”相比，此次中央政治局会议在“要求全面客观冷静看待当前经济形势”的同时，更强调了“做好经济工作的责任感和紧迫感”，并要求“加力推出增量政策”。
In the past few years, the Central Politburo has held three to four economically-themed meetings each year, typically in April, July, and December, with the October meeting generally focused on end-of-year tasks based on third-quarter economic data. However, there have been recent changes. This latest meeting, which was brought forward to prioritize economic issues, marked the first instance of proposing to "face difficulties and strengthen confidence." Compared to two months ago, when the Central Politburo advocated for "early preparations and timely introduction of a batch of incremental policy measures," this meeting placed greater emphasis on "responsibly and urgently managing economic work," urging a "strengthened launch of incremental policies."
此前两天，一系列金融政策组合拳已然出手。
Two days prior, a series of financial policy measures had already been introduced.
- DIGEST HUB
Digest Hub
Back
- The recent Politburo meeting emphasized urgent economic management, further policy measures, and real estate market stabilization, marking a proactive approach to economic challenges.
- The People's Bank of China announced significant policy changes, including interest rate and reserve requirement ratio reductions, mortgage rate cuts, and new monetary tools, with a total potential injection of 800 billion yuan.
- Financial measures introduced included strategies to support the real estate and stock markets, alongside fiscal policy considerations for further stimulating economic growth, potentially involving a proposed 10 trillion yuan economic stimulus plan.
The article presents a comprehensive overview of China's recent economic measures, focusing on the Politburo meeting held on September 26, 2023, which aimed to address economic challenges and bolster market confidence. This summary comprises key points, marked with paragraph indicators from the original text to denote their sources. [para. 1]
Historically, the Central Politburo holds three to four economically-themed meetings annually, usually in April, July, and December. However, this meeting was brought forward to emphasize economic issues and marked the first occurrence of proposing to "face difficulties and strengthen confidence," a shift from the previous emphasis on "early preparations and timely introduction of policy measures." Two days prior, on September 24, significant policy changes were already underway [para. 2][para. 3].
During a press conference on September 24, Pan Gongsheng, Governor of the People's Bank of China, announced three critical monetary policy changes: the reduction of the reserve requirement ratio and policy interest rates; reductions in existing mortgage rates, and the unification of the minimum down payment ratio for mortgages; and the creation of new monetary policy tools totaling 800 billion yuan to support the stock market. This has been the central bank's fourth policy shift in 2024, surpassing market expectations [para. 3][para. 4]. [para. 5]
Li Yunze, Director of the National Financial Regulatory Administration (NFRA), also announced banking sector policies, including increasing core tier-one capital for major commercial banks and optimizing financial support for small and micro enterprises [para. 4]. Fidelity Fund’s Co-Chief Investment Officer, Nié Yìxiáng, noted the monetary policy exceeded market expectations, aligning with real estate policies but vastly improving liquidity in the capital market. Lu Ting, Nomura China's Chief Economist, affirmed these comprehensive measures extended well beyond expectations, especially for the stock market [para. 7].
Market reactions to these policy announcements were swift. On September 24, the Shanghai Composite Index surged by over 4%, and the onshore renminbi appreciated against the US dollar. By September 26, the Shanghai Composite Index closed at 3000.95 points, up 3.61%, while long-term bond yields rose [para. 8].
Lu Ting believes the policy package’s short-term cumulative effects hinge on cooperation with other ministries, particularly over fiscal policy [para. 8]. The Politburo emphasized counter-cyclical adjustments in fiscal and monetary policies, suggesting further fiscal measures, including the introduction of ultra-long-term special government bonds [para. 5].
Significant changes to monetary policy included the People’s Bank of China’s seventh cut since 2024, an aggregate 30 basis point reduction in the 7-day reverse repurchase rate, and lowering reserve requirement ratios [para. 10][para. 11]. This moved the reserve requirement from 7.2% to 6.6%, projecting further cuts [para. 15].
Consequent economic shifts include relaxed reserve requirements for banks, anticipated further supporting fiscal policies such as the issuance of ultra-long-term government bonds [para. 18]. This relaxation increases funds available to commercial banks, partially alleviating the need for medium-term lending facilities [para. 12].
In terms of real estate, the meeting on September 26 introduced policies aimed at stabilizing the market. To address ongoing declines, new policies focused on reducing interest rates for existing mortgages and standardizing minimum down payment ratios. However, industry responses suggest these measures are not expected to reverse market downturns immediately [para. 28][para. 29][para. 30].
Lastly, concerns about the fiscal stimulus, particularly the advocacy for a 10 trillion yuan economic stimulus package proposed by Liu Shijin, highlight debates surrounding addressing deficiencies in basic public services, stimulating consumption, and long-term investments in human capital [para. 82][para. 84][para. 86].
In summary, China's holistic economic strategies involve significant monetary policy adjustments, fiscal strategies, and sector-specific measures poised to restore confidence and stimulate broader economic activities. These decisions reflect both immediate responses and long-term planning to navigate the country's economic landscape.
- Fidelity Funds Management (China) Co., Ltd.
富达基金管理（中国）有限公司 - Fidelity Funds Management (China) Co., Ltd. is noted for its engagement in the recent economic developments in China. Co-Chief Investment Officer and Portfolio Manager, Nie Yixiang, commented that the latest central bank's monetary policies exceeded market expectations, while real estate policies met expectations. The liquidity support for capital markets was significantly above anticipated levels.
- Nomura
野村 - Nomura China's Chief Economist, Lu Ting, noted that the policy package announced on September 24 covers multiple areas such as real estate and the stock market. Lu observed that while some policies exceeded market expectations, particularly those related to the stock market, others like rate cuts were anticipated and perhaps should have been implemented earlier.
- China Minsheng Bank
民生银行 - According to the article, Minsheng Bank's chief economist, Wen Bin, mentioned that in 2024, from September to year-end, the scale of Medium-term Lending Facility (MLF) maturing will exceed 4 trillion yuan monthly. The bank's needs will be offset by the recent reserve requirement ratio (RRR) cut, providing long-term liquidity and potentially another cut by 0.25 to 0.5 percentage points by year-end.
- Great Wall Securities
长城证券 - Great Wall Securities' research report highlighted that the recent reserve requirement ratio (RRR) cut also considers potential fiscal stimulus in Q4, including the potential issuance of ultra-long-term special government bonds, to supplement funding. This approach mirrors policies seen in Q1 of 2024 when a January RRR cut anticipated March sessions of the National People's Congress.
- China International Capital Corporation
中金公司 - The article does not mention China International Capital Corporation (CICC). It focuses on recent Chinese government meetings and their economic policies like lowering reserve requirements, reducing mortgage rates, and fiscal measures to support growth. The initiatives aim to bolster the property market, finance technology investments, and address fiscal constraints, but CICC is not discussed within this specific context.
- Zhang Shuaishuai Team
张帅帅团队 - The Zhang Shuaishuai Team at CICC (China International Capital Corporation) focuses on banking industry analysis. They noted that reducing the down payment ratio for second homes might stimulate demand slightly, but significant improvements in residents' willingness to purchase homes rely on boosting income. The team believes the recent supportive measures could help in improving banks’ incentives to provide loans, thus aiding the housing market recovery.
- Vanke
万科 - Vanke experienced a credit crisis in early 2024, leading to the near closure of its public bond issuance channels. As of March 2024, Vanke's commercial sector had completed 84 billion yuan in replacement existing CMBS loans through projects like Shenzhen Impress Center, Ningbo Yinzhou Impress City, and Xi'an Longshou Impress City. These efforts were aided by the central government's supportive policies for commercial property loans.
- Guosen Securities
国信证券 - Guosen Securities' research suggests the recent reserve requirement cut contemplates possible fourth-quarter fiscal expansion, including issuing ultra-long special government bonds. This coordination was also seen in the first quarter when a January reserve requirement cut anticipated special bond issuance during the March National People's Congress.
- Industrial and Commercial Bank of China (ICBC)
工行 - As of June 2024, the Industrial and Commercial Bank of China (ICBC) has a core tier-one capital adequacy ratio of 13.84%, surpassing regulatory minimum requirements. It plans to increase its capital as part of a broader initiative supported by the state to ensure financial stability and bolster its capacity to support China's economic growth, including participation in economic stimulus and technology finance projects.
- Agricultural Bank of China (ABC)
农行 - As of the end of June 2024, Agricultural Bank of China (ABC) had a core tier 1 capital adequacy ratio of 11.13%, surpassing the regulatory minimum of 9%. ABC, along with other major banks, faces challenges such as the impact of lending rate cuts and the implementation of wide-ranging financial policies aimed at stabilizing real estate and economic growth. The Chinese government plans to bolster the capital of major banks, including ABC.
- Bank of China (BOC)
中行 - As of June 2024, Bank of China's core tier-one capital adequacy ratio is 12.03%, above regulatory requirements. BOC is among the six large banks set to receive a capital boost from the government to enhance their capacity to serve the economy. The latest policies aim to stabilize BOC's net interest margin amidst expected rate cuts. BOC also participates in initiatives for steady economic support, including the potential expansion of AIC's equity investment.
- China Construction Bank (CCB)
建行 - China Construction Bank (CCB) is among China's major banks and is subject to recent regulatory adjustments aimed at stabilizing the economy. As of mid-2024, CCB's core tier-one capital adequacy ratio is 14.01%, above regulatory minimums. It also participates in the government's initiatives to stabilize the real estate market and support technological investments through AIC (Asset Investment Company) programs, including expanded direct equity investments in multiple cities.
- Bank of Communications (BoCom)
交行 - Bank of Communications (BoCom) has a core tier-one capital adequacy ratio of 10.3%, which is above the regulatory minimum requirement of 8.5% for global systemically important banks (G-SIBs) group 2. BoCom has responded to state policies and aims to balance capital consolidation with dividends. The bank, like others, faces profit margin pressures amid interest rate cuts and economic challenges.
- Postal Savings Bank of China (PSBC)
邮储银行 - As of mid-2024, Postal Savings Bank of China (PSBC) had a core Tier 1 capital adequacy ratio of 9.28%, exceeding the regulatory minimum of 8%. Unlike other major Chinese banks, PSBC has not yet been designated as a Global Systemically Important Bank (G-SIB). Consequently, its capital requirements are slightly lower compared to some of its larger peers.
- Bank of China Research Institute
中国银行研究院 - The Bank of China Research Institute recently released the "Q4 2024 Economic and Financial Outlook Report." The report highlights concerns about the current net interest margin (NIM) stabilization prospects, noting that without a significant rebound in real economy financing demand, NIM could still face substantial downward pressure.
- Yuekai Securities
粤开证券 - Yuekai Securities' Chief Economist and Research Institute Director, Luo Zhiheng, suggests short-term fiscal policy preparations. These include studying additional deficit bond issuance, accelerating special bond issuance, expanding their usage, and optimizing debt policies to transition from emergency to normalcy.
- School of Economics and Management at Tsinghua University
清华大学经济管理学院 - The School of Economics and Management at Tsinghua University is led by Dean Bai Chong-en. Bai Chong-en has conducted economic analyses, including estimating additional deficits incurred by local governments during the pandemic and advocating for fiscal support to normalize economic activities and enhance public services. His work underscores the importance of public consumption in fiscal policy for economic recovery.
- Shanghai Finance and Development Lab
上海金融与发展实验室 - Shanghai Finance and Development Laboratory's (Shanghai Finance and Development Lab) chief expert and director, Zeng Gang, commented on Chinese banks' capital adequacy. He noted that while large state-owned banks meet regulatory minimums, they still face pressures such as reduced profitability from economic recovery efforts and external commitments. The lab's research highlights the need for strategic capital management to balance service expansion and financial stability.
- Institute of World Economics and Politics at the Chinese Academy of Social Sciences (CASS)
中国社科院世界经济与政治研究所 - The Institute of World Economics and Politics at the Chinese Academy of Social Sciences (CASS) is a prominent research body focused on global economic and political analysis. Its emphasis includes international finance, trade, and economic policies. The Institute plays a critical role in shaping China's economic strategies and policies. Notably, Deputy Director Xu Qiyuan highlighted the importance of fiscal measures for economic stabilization in the article.
- Standard Chartered Bank
渣打银行 - Standard Chartered Bank described the central bank's recent policy actions as "bold," suggesting a potential shift towards a more aggressive monetary policy stance. The bank highlighted that these measures might indicate a change in policy attitudes, aiming for a stronger economic response.
- August 2023：
- The central bank prompted commercial banks to reduce interest rates on existing mortgage loans.
- May 17, 2024：
- The central bank abolished the restrictions on the adjustment of mortgage interest rates based on the LPR as part of the '517 New Policy'.
- July 2024：
- The People's Bank of China lowered the 7-day reverse repurchase agreement (repo) rate by 10 basis points to 1.7%. The 1-year and over 5-year LPR were also cut by 10 basis points each.
- September 24, 2024：
- The State Council Information Office held a rare press conference at 9 a.m. Top officials from the People's Bank of China, NFRA, and China Securities Regulatory Commission attended. Governor of the People's Bank of China, Pan Gongsheng, announced significant policy changes including a reduction in the reserve requirement ratio and policy interest rates, reduction in existing mortgage rates, and the creation of new monetary policy tools supporting the stock market.
- September 24, 2024：
- The Shanghai Composite Index surged more than 4% to 2,863 points in the afternoon, and the onshore renminbi appreciated 0.28% against the US dollar.
- September 25, 2024：
- The Shanghai Composite Index continued to rise; the offshore RMB exchange rate against the USD briefly recovered the 7 mark.
- September 25, 2024：
- The People's Bank of China conducted a rollover of 300 billion yuan of one-year MLF, with the winning bid rate decreasing by 30 basis points to 2.0%.
- September 26, 2024：
- The Politburo meeting took place and emphasized strengthening counter-cyclical adjustments in fiscal and monetary policies.
- September 26, 2024：
- The Shanghai Composite Index closed at 3000.95 points, up 3.61%. The yield on long-term bonds rose from 2.03% to 2.07%, and the onshore RMB exchange rate dipped below 7.01 against the USD.
- September 27, 2024：
- The People's Bank of China issued two announcements at 8 a.m.: the 7-day reverse repurchase rate was reduced from 1.7% to 1.5%, and the reserve requirement ratio for financial institutions was lowered by 0.5 percentage points.
- PODCAST
- MOST POPULAR
Sign in with Google
Sign in with Facebook
Sign in with 财新