What is the incremental policy? | Interpretation of the NDRC press conference

Article | Zhou Junzhi, Wang Zexuan CSC Research Macro Team

Key Points

After the rapid rise, the market is expecting another round of policy support. This meeting failed to meet such expectations, as it mainly focused on reporting the previously deployed package of policies and did not arrange for additional policy measures.

Regarding government investment and fiscal policies that the market is concerned about, the meeting still addressed several details.

1. This year's investment projects have started, but with different progress rates.

2. Expanding effective investment anchors in five directions, with one clear incremental information, issuing two "100 billion" in advance.

This meeting deployed a package of policies without large-scale stimulus. This also means that the expectation of a round of local investment as the main driver, similar to the 4 trillion yuan stimulus package or the local infrastructure driven by PPP in 2016, may not be the main theme of this fiscal round.

However, it is important to note that fiscal stimulus and fiscal balance are two different concepts.

To balance revenue and expenditure, there may still be a possibility of issuing additional bonds within the year. If issuing bonds within 3 trillion yuan, it would mean a greater significance for balance. In other words, 3 trillion yuan may be a good fiscal observation anchor.

Events & Comments

On October 8, 2024, the State Council Information Office held a press conference to introduce the situation of "systematically implementing a package of incremental policies to solidly promote the improvement of economic structure and development momentum".

I. This is a briefing and introduction meeting, not a policy launch meeting

The theme of today's press conference is "introducing the systematic implementation of a package of incremental policies to solidly promote the improvement of economic structure and development momentum", rather than launching new policies.

On September 26, the Central Political Bureau held a meeting to deploy the next steps in economic work and introduce a package of incremental policies.

On September 29, the State Council held an executive meeting to specifically discuss the implementation of a package of incremental policies.

Following these meetings was the current press conference, which mainly aimed to report and introduce the decision-making deployments of the Party Central Committee and the State Council from the previous two meetings.

The systematic policies introduced in this meeting mainly include five aspects: increasing macroeconomic countercyclical adjustments, expanding domestic effective demand, increasing support for enterprises, stabilizing the real estate market, and boosting the capital market.

II. The highlight of this meeting is some policy details that indirectly address market confusion

Investments for this year are already being implemented, and projects are underway.

The majority of the nearly 6 trillion yuan in government investment has already been implemented in specific projects, currently accelerating the formation of physical work, with a 58% commencement rate for the 700 billion yuan in central budgetary investment projects.

Of the 1 trillion yuan in ultra-long-term special national bonds, 700 billion is used for "dual" construction, all allocated to projects with a 50% commencement rate.

Of the 3.12 trillion yuan in local government special bonds for project construction, 2.83 trillion has been issued, with an 85% commencement rate.

The 1 trillion yuan in national bond projects issued in the fourth quarter of last year has all commenced, with 770 billion yuan already investedIntroducing major projects to private capital, attracting participation in 441 projects with a total investment of 344.8 billion.

The next step is to expand effective investment, with three key points for incremental information.

Advance issuance of the list of "two major" construction projects for 2025 and central budget investment plans, and increase efforts to advance 102 major projects in the "14th Five-Year Plan".

"Advance issuance of a 100 billion yuan list of 'two major' construction projects and a 100 billion yuan central budget investment plan," mature projects can form physical work volume as soon as possible within the year, detailing information on incremental policies.

Advancing 102 major projects and making good use of special bonds are continuing to advance existing policies.

Some expiring phased tax and fee support and other fiscal policies may be extended.

It is proposed that some expiring tax and fee support at the end of this year, unemployment insurance support for enterprises to stabilize employment, and policies such as skills enhancement subsidies will be clarified for extension after evaluation.

III. The comprehensive incremental policies do not include traditional large-scale fiscal stimulus

From the briefing and detailed introduction of this press conference, the comprehensive incremental policies decided by the Party Central Committee and the State Council in five aspects do not include large-scale fiscal stimulus policies.

Expecting a round of local investment to lead, similar to the four trillion or the 2016 PPP-driven local infrastructure, may not be the main theme of this round of fiscal policy.

Fiscal stimulus and fiscal balance are two different concepts, and to balance the decline in land sales, there may still be a possibility of issuing bonds within the year.

First, the mention of advance issuance of two 100 billion yuan, which can form physical work volume as soon as possible within the year, may require bond issuance for support;

Second, the mention of increasing related policies (such as consumer goods replacement) to promote implementation, driving continuous growth in consumer goods consumption, there is still room for imagination in boosting consumption;

Third, the mention of supporting local debt replacement efforts, resolving debt risks, may also require bond issuance for support;

Fourth, the mention of ensuring necessary fiscal expenditures, in the case of fiscal revenue falling short of expectations this year, may also require bond issuance to make up for the shortfall.

IV. What is the evaluation anchor for fiscal strength?

Looking back at history, when actual fiscal revenue deviates from the budget, the usual approach is to reduce actual expenditures, as was the case in 2022 and 2023.

Based on a simple extrapolation of fiscal data from January to August, the total gap to complete the initial budget expenditure for this year is 2.8 trillion. According to historical experience, this year may not need to issue additional bonds, and reducing expenditures can achieve a balanced budgetAfter considering the emphasis on economic stability and ensuring necessary fiscal expenditures following the political bureau meeting, it is possible to balance revenue and expenditure by issuing national bonds within the year. If the scale of bond issuance is within 3 trillion, we understand that this will not bring about additional fiscal expenditures, but rather fulfill the fiscal expenditures set at the beginning of the year. Therefore, the 3 trillion can be an observation anchor for us to assess whether there is incremental expenditure in the future.

Risk Warning

There is still uncertainty about the sustainability of consumption recovery. Since the beginning of this year, household consumption has started to pick up, but the recovery level is limited. Whether it will continue to fluctuate at a low level or move closer to normal growth rates still needs to be closely monitored. If consumption remains weak, the momentum of economic recovery will be limited.

There is uncertainty about whether the real estate industry can continue to improve. The current downturn in the real estate sector has lasted for a long time, and although there is a brief warming trend at present, various indicators are still showing negative growth. Whether it can maintain this warming trend in the future remains to be seen.

The impact of tightening monetary policies in Europe and the United States may exceed expectations, dragging down global economic growth and asset price performance.

Geopolitical conflicts still pose uncertainties, disturbing the global economic growth outlook and market risk appetite.

Securities research report title: "What is the Incremental Policy? - Interpretation of the NDRC Press Conference"

Date of external release: October 8, 2024