Commentary: Where the Money Needs to Go to Spur on China’s Growth

[para. 1] China has implemented monetary stimulus measures in September aimed at bolstering its economy. Speculation is rising about the possibility of a significant fiscal stimulus package that could surpass 10 trillion yuan ($1.4 trillion).

[para. 2][para. 3] However, expectations for a large package may be tempered. Analysts suggest a more modest fiscal stimulus between 1.5 to 2 trillion yuan could emerge shortly, with an additional 2 to 3 trillion yuan expected in 2025. Projections for the second half of 2024 indicate a fiscal expansion of 1 to 1.2 trillion yuan, equating to about 0.3-0.4% of GDP. A 2025 baseline scenario assumes fiscal expansion at 1% of GDP, incorporating 1.5 trillion yuan in special treasuries and about 4 trillion yuan in special local government bonds.

[para. 4] A fiscal stimulus package for 2024 might be announced post-October holiday or in conjunction with third-quarter data disclosures on October 18. Potential 2025 measures could be decided during the Central Economic Work Conference in December.

[para. 5][para. 6] September saw policies to support China’s capital markets and real economy, including rate cuts, easing of property market conditions, and new monetary tools to stabilize stock markets. Despite ongoing fiscal restraint, governmental intent to provide further policy support was suggested during a Politburo meeting on September 26, leading to varying stimulus estimates from 2 to 10 trillion yuan, equating to 1.6% to 8% of GDP.

[para. 7][para. 8] A large-scale stimulus is expected to address financing issues and debt burdens of local governments, inject capital into state-owned banks, and support households and corporates through heightened social spending and subsidies.

[para. 9] The exact quantum of fiscal stimulus needed hinges on growth goals; achieving near 5% GDP growth in 2024 could necessitate swift implementation of a 1.5 to 2 trillion yuan package.

[para. 10] To stabilize the real estate market and boost confidence aiming for near 5% growth by 2025 will require greater fiscal measures, plus structural reforms.

[para. 11] Potential fiscal needs include filling a 1.3 trillion yuan fiscal revenue gap, restructuring local government debt, enhancing social spending, providing consumption subsidies, and addressing housing inventory.

[para. 13][para. 14] While a considerable fiscal package may be necessary, funding constraints suggest reliance on central government bonds and cautious fiscal planning. Addressing financing difficulties, supporting social initiatives, and relieving debt burdens through targeted interventions are likely.

[para. 15] If a 1.5 to 2 trillion fiscal stimulus is executed, 2024 GDP could rise to 4.8%. Stronger property market support in 2025 might further boost GDP growth to 4.5%, barring external factors like tariff hikes.

[para. 16] As fiscal and monetary policies ease, the yuan might strengthen, potentially hitting 6.9 against the U.S. dollar in 2024 and 6.8 in 2025.

[para. 17][para. 18] This analysis, authored by Wang Tao, reflects UBS Investment Bank views and not necessarily those of Caixin Media. Caixin welcomes contributions and perspectives via their opinion section email.