China Finance Minister Plans Briefing as Investors Seek Stimulus #NewsUnitedStates

(Bloomberg) — China said it would hold a briefing on fiscal policy on Saturday as investors look for additional measures to stimulate the world’s No. 2 economy.

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Finance Minister Lan Fo’an will introduce moves to strengthen fiscal policy to shore up growth, and answer questions from reporters, the State Council Information Office said in a statement on Wednesday. The briefing will start at 10 a.m. local time.

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Chinese stocks pared losses and the offshore yuan strengthened on the announcement as investors speculated the nation may unveil fiscal stimulus at the briefing. That optimism faded, however, as traders reassessed the strength of any measures policymakers will make.

“It’s quite unlikely that the fiscal headline number is going to be huge,” said Jiang Liangqing, managing director at Zhuhai Greenbamboo Private Fund Management, citing the risks of debt-fueled spending binges. “There’s a ceiling to how strong fiscal measures can be before they bring an adverse effect.”

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China’s benchmark CSI 300 Index closed 7.1% lower on Wednesday, the first drop in 11 sessions and the biggest loss since 2020. The country’s 10-year government bond futures rebounded 0.5% in the afternoon after previously erasing an advance. The offshore yuan was little changed.

Stock investors have looked for greater fiscal spending to arrest a slowdown that threatens to put the country’s 2024 target of about 5% growth out of reach. Many expect an announcement by the Ministry of Finance, typically tasked with issuing bonds to support stimulus measures, after China’s economic planning agency disappointed on Tuesday by announcing no major pro-growth steps at the government’s first briefing after the long national holiday.

“This is a high-profile briefing as fiscal policy has been a focus of the market,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc. “Only with the spending by the MOF can projects announced by the NDRC be rolled out and monetary easing have an impact on the real economy,’ he said, referring to the economic agency National Development and Reform Commission.

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What Bloomberg Economics Says…

“China’s stimulus has given a big lift to sentiment — a key element to turning the economy around. But the breathtaking rally in stocks – driven by speculation of more rapid-fire, large-scale steps — creates a risk: a pullback that could hit confidence and hurt the recovery when policymakers fail to live up to those unrealistic expectations.”

— Chang Shu, David Qu and Eric Zhu

Read the full note here.

In another sign of markets’ intense focus on the prospect of stimulus, traders circulated on Wednesday screenshots of an article in a Communist Party newspaper in Sichuan province that made oblique references to a pending announcement by China to sell more special sovereign bonds, without specifying a time frame.

The proceeds of these bonds — a total of 1 trillion yuan was planned for this year — are meant to fund major national projects such as technology, urban infrastructure and disaster relief. The government also used some of the notes to subsidize purchases of industrial equipment and consumer goods including electric vehicles. The NDRC said Tuesday the government will continue to sell such debt next year.

Lan has given few press briefings since assuming his role a year ago, and expectations vary on the size of any fiscal stimulus.

Banks including Morgan Stanley and HSBC Holdings Plc expect 2 trillion yuan ($283 billion) in stimulus, while Citigroup Inc. put the amount at 3 trillion yuan. Economists have speculated measures such as support for local government financing, infrastructure investment, a consumption boost and bank recapitalization.

In a nod to the concerns of the private sector and investors, Chinese Premier Li Qiang on Tuesday vowed to “listen to the voice of the market” when formulating economic policies. His remarks echoed recent calls by China’s top decision-making Politburo to “face the difficulties squarely,” underscoring Beijing’s renewed urgency to shore up confidence after the economy grew at its slowest pace in five quarters.

Just before the Golden Week holiday, the government unleashed a slew of stimulus measures including interest rate cuts, more liquidity to promote bank lending and a pledge of as much as $340 billion to support the stock market. The efforts prompted Chinese stocks to surge some 30%.

Adding to the frenzy of action aimed at stabilizing growth, the Chinese central bank on Wednesday said it held its first joint meeting recently with the Ministry of Finance about diversifying the monetary policy toolbox and “gradually” increasing the monetary authority’s sovereign bond trading in the open market.

The People’s Bank of China is overhauling its policy framework, including the move to manage interbank liquidity via bond trading, as it seeks to improve the effectiveness of monetary adjustments in aiding the economy and keep risks of speculation in the bond market in check.

The authorities will continue to strengthen policy coordination and create an “appropriate market environment” for bond trading by the PBOC, it said.

–With assistance from Yujing Liu, Matthew Burgess, April Ma, Tian Chen and Iris Ouyang.

(Updates with market prices, more comments and details.)

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