(Bloomberg) -- China’s top leaders ramped up efforts to revive growth with pledges to support fiscal spending and stabilize the beleaguered property sector, giving new momentum to stimulus measures aimed at arresting a slowdown in the world’s second-largest economy.
President Xi Jinping’s huddle of the 24-man Politburo concluded with a promise to strive to achieve the country’s annual economic goals, the official Xinhua News Agency reported Thursday. Officials pledged action to make the real estate market “stop declining,” their strongest vow yet to stabilize the crucial sector after new-home prices fell in August at the fastest pace since 2014.
The government will also strictly limit the construction of new-home projects, the Politburo said, as part of efforts to ease residential oversupply — although such building has ground to a near-halt.
While the Politburo offered no specifics on fiscal spending, Reuters reported late Thursday that the Ministry of Finance is planning to issue 2 trillion yuan ($284 billion) of special sovereign bonds this year. That funding will be evenly split between stimulating consumption and helping local governments tackle debt problems, Reuters said, citing two people familiar with the matter.
“Two trillion yuan well beats expectations,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc. “This is a big bang fiscal stimulus that underpins both boosting consumption and defusing risks.”
The package revealed this week, including reported plans for the sovereign bond sales, would lift the economy by 0.2 percentage points, helping the government hit its annual growth goal of around 5%, he added.
The Politburo readout came hours earlier than normal, just as afternoon trading began. After its release, China’s CSI 300 Index — a gauge of onshore stocks — extended gains to 4.2%, erasing losses for the year, while a gauge of developers tracked by Bloomberg jumped 15.9%.
The yield on China’s 10-year bonds rose 7 basis points, extending an earlier increase on the Politburo’s stimulus plan. That marked the biggest jump since November 2022.
The statement was also notable for its detailed language around policy tools such as calls for the “forceful” implementation of rate cuts, a contrast with typically vague, sweeping statements. That departure underscores officials’ need to talk directly to markets, days after the central bank unleashed a powerful policy blitz that sent a benchmark stock index soaring by the most since 2020.
What Bloomberg Economics Says ...
China’s policymakers are pulling out the stops. Coming two days after the central bank’s surprise stimulus, pledges from the Politburo to boost growth, halt the property rout, shore up the stock market and stabilize employment show an unusually high degree of urgency and determination to support the economy.
David Qu, economist
Read more here
“Today’s readout only has 1,200 words, compared with 2,000-plus words in previous meetings,” said Larry Hu, head of China economics at Macquarie Group. “It also cut out the usual jargon such as ‘prudent’ before monetary policy. All of this suggests a sense of urgency on the part of policymakers.”
Underscoring the shift in operating mode, instructions on the housing sector in the statement also marked “the first time since the downturn began that the Politburo has explicitly targeted a market rebound,” Julian Evans-Pritchard, head of China economics at Capital Economics, said in a note.
The focus on the economy at this month’s meeting — for the first time since 2018 — was also unusual, as that agenda is usually reserved for the Politburo’s April, July and December huddles. That deviation speaks to officials’ desire to allay rising economic anxiety after China’s growth slowed to the worst pace in five quarters.
Leaders urged for “calm” in handling the current economic challenges, while seeming to acknowledge it was time for a shift in gear. Officials were given clear instructions to “face up to difficulties, strengthen confidence, and earnestly enhance the sense of responsibility and urgency of doing economic work well.”
Economists generally saw the announcement as a pivot from authorities’ previous piecemeal approach to boosting the economy, even as the extent of any fiscal stimulus remains unclear.
In a sign the government is increasingly concerned about the economic malaise, the Politburo vowed to strengthen aid for people with difficulties in finding jobs and lower-income groups. The previous day the country said it will give one-off cash handouts to residents facing hardship and vowed more benefits for some unemployed people.
The Politburo also urged officials to “issue and make good use” of the ultra-long special sovereign bonds and local special notes to drive investment. Local governments have accelerated bond issuance since August after keeping the pace slow, as they struggled to find quality projects to invest in while trying to reduce debt risks.
The readout could lead to a further expansion of the sectors that local officials can invest in to facilitate the use of the tool, said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc. One effective way would be to allow local governments to buy unsold homes using funds raised from special bond sales, he said.
The recent spate of stimulus has helped reduce concerns China will miss its annual growth target. Previously, economists at Wall Street banks including Goldman Sachs Group Inc. cut their full-year GDP forecasts in the wake of miserable economic data in August.
“The frequency and magnitude of policy rollouts have exceeded our expectation,” HSBC Holdings Plc. economists including Jing Liu wrote in a note. “The tide has turned; be prepared for more proactive initiatives.”
--With assistance from Ocean Hou, Emma Dong, April Ma, Fran Wang, Paul Abelsky and Helen Sun.
(Updates with Finance Ministry’s reported plan to sell bonds.)
©2024 Bloomberg L.P.
