Analysts gave a cautious welcome to China’s announcement Saturday of fresh fiscal stimulus to revive its ailing economy but warned that more details — and specific headline figures — were needed before its effect could be fully assessed.
At a highly anticipated news conference, Beijing said it would issue special bonds to boost the capital available to banks, as well as allow local governments to borrow more.
The moves add to a series of measures unveiled in recent weeks that have included interest rate cuts and liquidity injections for banks, all aimed at kick-starting China’s dragging economy.
Leaders said recently that the government’s official growth target for this year of about five percent was within reach.
But economists have warned that a robust fiscal stimulus programme is necessary in order to boost domestic spending and achieve the full post-pandemic recovery that has so far eluded policymakers.
‘Devil in details’
“The surprise today is that there is no specific number,” Heron Lim of Moody’s Analytics told AFP after the Saturday press conference, saying it looked like the government was “still working on the minute details of the fiscal stimulus”.
“Unfortunately for China, the devil is in the details. It would be preferable that they do have some headline numbers for people to chew on,” he added.
“In the meantime, investors might be taking a step back until they are absolutely certain of the direction fiscal support is taking.”
Although Saturday’s news conference did not unveil a “bazooka” stimulus package, which investors have been clamouring for, comments by officials on expanding central support for the economy received some praise.
Finance Minister Lan Fo’an said the government was “accelerating the use of additional treasury bonds, and ultra-long-term special treasury bonds are also being issued for use”.
The debt ceiling of local governments would also be increased, in theory empowering them to spend more on infrastructure and protect jobs.
“These policies are in the right direction,” said Pinpoint Asset Management’s Zhang Zhiwei in a note.
“While (Lan) didn’t say explicitly that they will raise fiscal deficit, I think his comments imply that it is possible the government will raise fiscal deficit above three percent for next year,” he wrote.
Such a move would represent a “meaningful shift” in Beijing’s fiscal policy approach, said Zhang, helping to “boost domestic demand and mitigate the deflationary pressure in the economy”.
But the impact of new policies on China’s broader economic outlook will depend on their “size and composition” — again, details that have yet to be announced — he said.
Long-term change ahead?
A major focus of Saturday’s news conference was the government’s efforts to shield local authorities from spiralling debt that could have negative spillover into the economy.
Xing Zhaopeng, senior China strategist at ANZ, said the messaging showed officials were focused on “derisking local governments”.
A new quota for treasury and local bonds, as well as a debt swap programme that could reach 10 trillion yuan ($1.42 trillion) in the coming years, is expected, he said.
Such moves would represent “long-term and structural change”, Xing added, noting that “local governments are the growth drivers in China”.
Other headwinds — including sluggish consumption and high youth unemployment — threaten to dampen economic vitality.
“Fiscal commitment needs to be more robust to offset the drag from households and the private corporate sector,” Gary Ng, senior economist at Natixis, told AFP.
Beijing had not yet decided on the size of its eventual fiscal stimulus package, said Ng, “meaning the impact on growth will depend on whether such announcements are enough to boost confidence.
“More needs to be done regarding implementation and injecting actual new fiscal money.”
