On October 8, the press conference held by China’s National Development and Reform Commission didn’t release any positive news, causing turbulence in the Chinese stock market. On the 11th, a general fall occurred again, with the Shanghai Composite Index barely holding above 3200 points. Concerns rose regarding whether the Ministry of Finance’s press conference on the 12th would bring out any major moves to address the situation. However, officials mainly revisited past work at the conference, and the explanation of future policies was criticized as being vague. Experts believe that the lack of confidence among the general public is the biggest issue facing the Chinese economy. Both the press conferences by the NDRC and the Ministry of Finance offered little in terms of effective solutions, simply prolonging the process.
According to state media reports, the State Council Information Office of China held a press conference at 10 a.m. on October 12. Finance Minister Lan Fo’an extensively reviewed the “achievements” at the beginning, while the discussions on the next steps were full of official rhetoric, reassuring that the annual budget work will be completed this year.
The Ministry of Finance emphasized the intention to significantly increase the debt ceiling at once and replace the hidden debts of local governments, intensify support to address local debt risks, issue special government bonds to support large state-owned commercial banks in capital supplementation, support stabilizing the real estate market, increase support and protection measures for key groups, encourage the activation of idle assets in certain regions, allow the use of special bonds for land reserves and support the acquisition of existing housing, among other measures.
Finance Minister Lan Fo’an said that the central government still has a considerable amount of room for borrowing and deficit improvement. He mentioned ongoing research on defining and canceling the connection between the VAT policies for ordinary and non-ordinary residential properties, expanding the scope of special bond usage, planning to introduce a series of “conditionally mature and achievable reform measures” in the coming years, etc.
China’s economic expert Wang He told Da Ji Yuan that the Ministry of Finance mainly spoke in general terms, essentially a bait to keep expectations high without much concrete policy action.
Regarding the focus on resolving local debts by the Ministry of Finance, Wang He expressed that the authorities may not have specific data on the hidden debts of local governments since the reporting is often inflated to higher levels. Hence, the officials’ promises may have significant gaps from the actual situation.
Lan Fo’an mentioned that in 2024, the fiscal deficit was arranged for 4.06 trillion yuan, an increase of 180 billion yuan from the previous year’s initial budget; the new local government special debt limit was set at 3.9 trillion yuan, an increase of 100 billion yuan from the previous year; and super long-term special government bonds of 1 trillion yuan were issued.
Wang He pointed out the difference between special and general debts, noting that general debts are repaid using local finances, while special debts are repaid from profits generated by specific projects. However, with the scarcity of profitable projects at the local level, the push for such financing might exacerbate the local debt crisis.
The Ministry of Finance’s press conference did not touch on the stock market, disappointing many Weibo users. While expressing disappointment with the Ministry of Finance’s press conference, many also expressed concerns about the stock market performance next week.
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In summary, the Ministry of Finance’s recent press conference aimed at addressing the challenging economic situation in China by primarily focusing on increasing government spending to tackle local debts and stabilize the financial sector. However, the lack of concrete actions or detailed plans disappointed market participants who were looking for more immediate solutions. The underlying message conveyed by the finance ministry seems to be a cautious approach with a heavy reliance on future debt issuance to support the current economic challenges, leaving many uncertainties regarding the effectiveness of these measures.