My Takeaways From The Ministry of Finance (MoF) Weekend Press Conference
From the bold and underlined sections below, the Ministry of Finance (MoF) press conference highlighted a continued commitment to support the economy, housing, local governments, and the banks. Supertankers don’t turn on a dime, but the key is there is more good news coming!
A key factor in both Saturday’s MoF and last Tuesday’s National Development and Reform Commission (NDRC) press conference is the reality that increasing the government budget requires the approval of the National People’s Congress (NPC), which is expected to meet at month’s end. Regardless of what you read in Western media telling you it was a “disappointment”, Mainland media was positive, the Mainland stock market rose today and Goldman Sachs raised its China 2024 GDP after the MoF press conference.
Yes, the MoF did not say domestic consumers will get payments, but focusing on that disregards what was otherwise a very positive press conference. Western media headlines were only focused on domestic consumption, which misses a multitude of positives, including buying unsold apartments for affordable housing, addressing local government finances, and their “hidden debts,” and capitalizing on banks’ balance sheet. Yes, Hong Kong was off due to the negative Western media headlines, though there may have been some profit-taking after the large rally.
China’s bureaucratic agencies are aligning themselves as the State Administration for Market Regulation (SAMR), Ministry of Industry and Information Technology (MIIT), Ministry of Justice and State Administration for Financial Supervision and Administration held a joint press conference on assisting businesses with an emphasis on credit access. Full MoF press conference is below the market update.
Key Question asked in the press conference Q&A: How can China’s proactive fiscal policy play a greater role in boosting consumption and preventing deflation risks?
Answers from MoF Spokespeople:
- First, we have taken multiple measures to increase residents’ income.
- Second, we will increase government investment through multiple channels. As we just mentioned, in 2024, 1 trillion yuan of ultra-long-term special treasury bonds will be issued, 3.9 trillion yuan of local government special debt limits will be added, and 700 billion yuan of central budget investment will be arranged. In addition, with the additional treasury bond funds in 2023, the actual scale of funds available for increasing government investment will increase significantly compared with last year, driving effective investment and expanding domestic demand.
- How much room does the central government have for increasing leverage? I also mentioned in my opening remarks that the central government has a lot of room for borrowing and increasing the deficit.
Key News
Asian equities were largely higher despite a stronger US dollar overnight, except for Hong Kong, which was off while Japan was closed for National Sports Day, which aims to foster healthy minds and bodies through physical activity, and Thailand was closed for H.M. King Bhumidol Adulyadej Memorial Day, celebrating the previous monarch’s passing.
Mainland markets rebounded on strong volume and breadth, led by real estate following the MoF press conference’s apartment purchase reference. Mainland media noted that Tier One city Guangzhou, which has eliminated home purchase restrictions (HPR), reported that the volume of new home sales increased 237% and used home prices increased 23% over the last two weeks compared to the same period last year, i.e. HPR elimination is incentivizing sales.
Vice Premier He Lifeng stated over the weekend that “the property market is a barometer of the macroeconomy, and doing a good job in the sector is crucial for promoting a sustained economic recovery and safeguarding the vital interest of the people”.
Hong Kong was off, led lower by growth stocks and sectors that led the market higher though Alibaba had very strong net buying from Mainland investors (I’ll put the number up on Twitter @ahern_brendan). Mainland investors bought the dip in Hong Kong, with $1.57 billion wort of net buying in Hong Kong stocks today.
Over the weekend, light September inflation data was released as the September CPI was 0.4% versus expectations of 0.6% and August’s 0.6% and September PPI -2.8% versus expectations of -2.8% and August’s -1.8%. This is where bad economic news should be a good thing for the stock market has it provides why stimulus is needed. After the close we had trade data, September Exports 2.4% year over year (YoY) versus expectations of 6% and August’s 8.7% and September Imports 0.3% (YoY) versus expectations of 0.8% and August’s 0.5%. New loans and aggregate financing improved versus August though former barely missed expectations while the latter barely beat. We have previously articulated that the slowing US economy (Fed is cutting for a reason) and global economy will reduce demand for China’s exports which is why raising domestic consumption is key. It is also worth noting that month over month Chinese exports increased 48% ($303B from $204B) though the official number is released year over year.
The Financial Times has a worthwhile read as they interviewed potential Trump Treasury Secretary Scott Bessent who “insists former president’s threats of large tariffs are bargaining positions”.
The Hang Seng and Hang Seng Tech indexes fell -0.75% and -1.43%, respectively, on volume that decreased -14% from Thursday, which is 236% of the 1-year average. 138 stocks advanced while 361 stocks declined. Main Board short turnover decreased -7% from Thursday, which is 192% of the 1-year average as 13% of turnover was short turnover (Hong Kong short turnover includes ETF short volume, which is driven by market makers’ ETF hedging). The value factor and large caps fell less than growth and small caps. The top-performing sectors were Real Estate, which gained +3.98%, Materials, which gained +2.17%, and Financials, which gained +1.51%. The top-performing subsectors were banks, semiconductors, and materials. Meanwhile, food, diversified financials, and pharmaceuticals were among the worst-performing subsectors. Southbound Stock Connect volumes were very high, 3X normal, as Mainland investors bought a healthy $1.57 billion worth of Hong Kong-listed stocks and ETFs, including Alibaba, which was a large net buy, Tencent, which was a moderate net sell, and Meituan, which was a very small net sell.
Shanghai, Shenzhen, and the STAR Board rose +2.07%, +3.01%, and +3.01% on volume that increased +4.08% from Friday, which is 198% of the 1-year average. 4,590 stocks advanced while 434 declined. The value factor and small caps rose more than the growth factor and large caps. All sectors were positive, led by Real Estate, which gained +3.52%, Technology, which gained +2.65%, and Financials, which gained +2.05%. The top-performing subsectors were diversified financials, software, and education. Meanwhile, airports and energy equipment were negative. Northbound Stock Connect volumes were high just over 2X the average. CNY and the Asia dollar index fell versus the US dollar. Treasury bond curve steepened. Copper and steel rose.
At 10am Beijing time on Saturday, the Ministry of Finance (MoF) held a press conference on “strengthening countercyclical fiscal policy and promoting high-quality economic development”. MoF’s Lan Fuan stated the purpose was to “summarize the implementation of proactive fiscal policy since this year, as well as the overall considerations for increasing the countercyclical adjustment of fiscal policy and promoting high-quality economic development in the next step.” Below are my notes from the press conference, which I did prior to reading any research or media accounts of the event. The press conference started with a summary of historical stimulus policies, a review of what’s coming, which is directly below and then a Q&A with reporters.
What’s coming? “the Ministry of Finance will launch a package of targeted incremental policy measures in the near future to stabilize growth, expand domestic demand and mitigate risks, based on accelerating the implementation of the determined policies.”
Key Quotes From MoF:
- First, we will increase support for local governments in resolving government debt risks, increase debt quotas on a large scale, and support local governments in resolving hidden debts.
- The second is to issue special government bonds to support large state-owned commercial banks in supplementing core tier-one capital, enhance these banks’ ability to resist risks and provide credit, and better serve the development of the real economy.
- Third, we will use tools such as local government special bonds, special funds, and tax policies to support and promote the real estate market to stop its decline and stabilize.
- Fourth, we will increase support and protection for key groups. Before the National Day, we have issued a one-time living allowance to people in need. In the next step, we will increase awards and assistance to students to enhance their overall consumption capacity.
- I would like to add that countercyclical regulation is not limited to the above four points. These four points are policies that have entered the decision-making process. We also have other policy tools under study. For example, the central government still has a large room for debt and deficit increase.
- From January to September, the national public budget expenditure was 20.18 trillion yuan, an increase of 2%.
- In terms of special bonds, the amount to be issued plus the funds that have been issued but not used, a total of 2.3 trillion yuan of special bond funds can be arranged and used in the next three months.
- The central government has allocated 400 billion yuan from the local government debt balance limit to supplement the comprehensive financial resources of local governments,
- The Ministry of Finance has arranged a local government bond quota of more than 2.2 trillion yuan to support local governments, especially high-risk areas,
- Real estate is an issue that everyone is concerned about. The Ministry of Finance and relevant departments are working together to focus on promoting the balance of supply and demand in the real estate market, continuously optimizing fiscal and taxation policies, and pushing the real estate industry back on track for stable and healthy development.
- On the demand side, the main goal is to support residents’ diversified housing needs and reduce housing purchase costs. This includes the introduction of a phased personal income tax refund policy for “selling old and buying new” housing.
- On the supply side,…In the past three years, the central government has allocated 212.4 billion yuan in subsidies for affordable housing projects and 280 billion yuan in central budget investment, and coordinated local government special bonds, etc., to support the raising of 6.66 million units of various types of affordable housing
From the Q&A:
We have issued a debt limit of 400 billion yuan to fund local governments’ “three guarantees”: basic livelihood, wages and operation.
What’s been done thus far? This was at the start of the press conference, but was consisted mainly a review of what’s occurred. The bold portions are my additions.
First, expand the scale of fiscal expenditure. In 2024, the fiscal deficit is planned to be 4.06 trillion yuan, an increase of 180 billion yuan from the budget at the beginning of the previous year; the local government special debt limit is increased by 3.9 trillion yuan, an increase of 100 billion yuan from the previous year; 1 trillion yuan worth of ultra-long-term special treasury bonds are issued, and the funds for the additional issuance of treasury bonds in 2023 are used well. The scale of general public budget expenditure for the whole year reaches 28.55 trillion yuan, and the high expenditure intensity is maintained continuously to provide strong support for high-quality development.
Second, optimize tax and fee preferential policies….. From January to August, the main policies to support scientific and technological innovation and the development of the manufacturing industry reduced taxes, reduced fees and refunded taxes by more than 1.8 trillion yuan.
Third, actively expand domestic effective demand. From January to September, 3.6 trillion yuan of new special bonds were issued, supporting more than 30,000 projects and more than 260 billion yuan of project capital.
Fourth, in 2024, the central government will arrange transfer payments to local governments of more than 10 trillion yuan, of which balanced transfer payments will increase by 8.8%, and county-level basic financial guarantee mechanism reward and subsidy funds will increase by 8.6%.
Fifth, since the beginning of this year, the central government has issued 66.7 billion yuan in employment subsidies to support local governments in employment and vocational skills training for key groups such as college graduates. From January to September, the national education expenditure was 3 trillion yuan. The basic pension level for retirees will be increased by 3%.
Sixth, we will work hard to resolve local government debt risks. On the basis of arranging a local government debt limit of more than 2.2 trillion yuan in 2023, the central government will arrange another 1.2 trillion yuan in 2024 to support local governments, especially high-risk areas.
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Last Night’s Performance
Last Night’s Exchange Rates, Prices, & Yields
- CNY per USD 7.08 versus 7.07 yesterday
- CNY per EUR 7.73 versus 7.73 yesterday
- Yield on 10-Year Government Bond 2.14% versus 2.14% yesterday
- Yield on 10-Year China Development Bank Bond 2.23% versus 2.23% yesterday
- Copper Price 0.31%
- Steel Price 1.07%
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