Ministry of Finance press conference: What kind of "boost" signal?

Today's press conference held by the Ministry of Finance, "Attracting Attention from All Sides", we believe that there is a wealth of practical content in the "incremental" focus of the market. Several unusual signals are particularly worth noting:

First, regarding the issue most concerning to the market in terms of scale, the Ministry of Finance hinted at the "intensity" in multiple responses. 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 previous press conferences held by the Ministry of Finance in recent years. Therefore, we expect that this round of incremental policies will be a large-scale plan for multiple years, and will not lag behind the curve in terms of pace and scale.

Secondly, the logic behind the introduction of incremental measures is to first repair the balance sheets of microeconomic entities, and then focus on consumption and investment. This is consistent with our previous report "Post-Holiday Macroeconomic Suspense". Especially, the Ministry of Finance emphasized the "proposed one-time increase in a relatively large amount of debt limit", as Minister Lan said, "will greatly reduce the pressure of local debt and free up more resources for economic development". The logic behind "issuing special national bonds to supplement commercial bank capital" is similar, that is, only when microeconomic entities no longer subtract from the balance sheet, can more incremental policies achieve the effect of addition.

Thirdly, the "3% deficit-to-GDP ratio red line" is likely to become a thing of the past, giving room for imagination for future fiscal efforts. In recent years, except for major unexpected public health events such as the pandemic, even during the China-US trade dispute, China's target deficit ratio has never exceeded 3%. However, at today's press conference, Minister Lan mentioned more than once that "the central government has considerable room for debt issuance and increasing the deficit", indicating the central government's determination to leverage up in the future. Looking at the next steps in the Ministry of Finance's work deployment, "improving residents' income expectations to stimulate consumption potential" ranks ahead of "driving effective investment and expanding domestic demand", indicating that structurally, future incremental space is being optimized and adjusted.

Fourthly, the coordinated cooperation between fiscal policy and monetary policy is continuing to advance. This press conference specifically elaborated on how fiscal policy supports banks and the real estate sector— in supporting the financial sector, it is achieved through debt issuance for capital injection, but what is different from the past is that this issuance of special national bonds to supplement capital for large state-owned commercial banks emphasizes "overall planning, phased implementation, and tailored policies", fully reflecting flexibility and differentiation. In supporting the real estate sector, further deployment was made on the "control of new housing increment and optimization of existing stock" from the September Political Bureau meeting. The incremental aspect of this round of policies mainly focuses on local special bonds supporting land reserves and housing inventory, as well as researching the cancellation of value-added tax policies related to non-ordinary residential properties. However, to stabilize the real estate market and prevent further decline, it will still require further coordination and efforts from other ministries and the Ministry of FinanceLooking ahead, the suspense of the "scale" of this round of incremental policies is expected to be implemented in the next two weeks. Just as Minister Lan hinted at the press conference, "a package of targeted incremental policy measures is already in the decision-making process," this decision-making process refers to the National People's Congress Standing Committee meeting held in late October, when a package of measures to resolve local debt risks and special national bonds will surface. We believe it is also worth paying attention to whether signals will be given regarding the space for increasing central government borrowing and deficit ratios.

Author: Ta Chuan from Minsheng Macro, Source: Chuan Yue Global Macro (ID: gh_fa80a5ed2401), Original Title: "Ministry of Finance Press Conference: What kind of "strengthening" signal?"