Waiting for the fiscal shoe to drop

Drip. Drip. Drip.

That’s what we’ve gotten over the past two weeks from Chinese economic and financial authorities – as investors, businesses, and households await details on an impending fiscal support package from Beijing.

Policymakers have put themselves in a bind.

• When the central bank announced a slew of monetary easing measures and the Politburo promised greater “countercyclical support” in late-September, Chinese equity markets soared and business finally got a glimmer of hope that the economy would soon be on the mend thanks to government support.
• Expectations are now very high – and if central authorities don’t meet the moment, and back their words with action, the disappointment will be that much greater.
• Indeed, if a concrete fiscal package doesn’t come by the end of the month, it will be a devastating blow to overall economic and business confidence, which is already at historical lows.

Over the past two weeks, authorities have flubbed three crucial opportunities to deliver some specifics on what the upcoming support package will look like.

• On October 8, the macro-planner (NDRC) held a press conference where it merely indicated that local government bond issuance will be sped up in October and that special treasury bonds will be issued to support households “in the future.” Drip.
• On October 12, the finance ministry (MoF) held a highly touted presser where it promised to make good on a “relatively large” support package for local governments to service their debt.
  • Disappointingly, MoF officials also said that they think there is plenty of infrastructure funding already in the pipeline, so they are unlikely to offer more this year.
  • And while they claim the pending support for local governments will be “the most powerful measure to support debt reduction in recent years,” they offered zero details. Drip.
• On October 17, the housing ministry (MoHURD) took its turn at the press mics to say it will double allocated bank funding to support housing completions and accelerate the urban housing renewal program. But all of this amounts to more of the same policies that have been in train for a year or more. Drip.

But hope lives on.

Touting these three press conferences in the media was always a strange move by the government, as none of these agencies have the power to unleash new and sizable fiscal spending.

• That’s above their paygrade.

Instead, announcements of large-scale new spending allocations typically fall to the legislature (NPC), which should meet by the end of the month – though no official date has been set so far.

• That means the drip, drip, drip could finally be met with an actual turn of the faucet within the next couple of weeks.

The big questions: Will the NPC deliver? And if it does, will the size of the fiscal supplement be enough to convince investors and businesses that the economy – and the market – is set for a sustained cyclical upswing?

• Our sense is that anything less than RMB 3 trillion in new spending would disappoint.
• The economy really needs more than that – but it would be a good start.

So as October comes to a close, all eyes will be on the NPC.

• Like everyone, we’ll be closely monitoring both ongoing reporting around the moves authorities are considering, and looking for an imminent announcement on exactly how much fiscal support they will provide.

There was a lot more news out of China this week – on the political, commercial, technological, and economic fronts.

• We highlight everything you need to know below. 

-Andrew Polk, Co-founder, Trivium China

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Announcements

Don’t sleep on Trivium China.

• We’ve got tons of great content coming out every week – and this is the place to keep up to date.

The latest:

• Check out our three most recent Flash Talks – all looking at the moving target that is China’s fiscal stimulus – recorded over the past three weeks.

And this is a big deal:

• We’ve finally launched our Flash Talks as podcasts!
• The three fiscal-focused discussions noted above are now available for listening.
• Check them out here on Spotify.

Note: Our podcast content will be free for everyone for the next few months – but soon we’ll be layering in additional subscriber-only episodes.

• So if you’re not a paid Trivium China subscriber – sign up here for a free trial.

What you missed

Politics

On the political front, the big news this week was Xi Jinping’s inspection tour of Fujian province.

TL;DR: On his visit, Xi called for “Taiwan businesses to take root in Xiamen and develop and grow…[and support] cross-strait integrated development.”

• This came just days after the Eastern Theater Command of the People’s Liberation Army (PLA) conducted new naval and air drills, code-named Joint Sword-2024B, around Taiwan.
• So it’s not all carrot on Taiwan policy, by any means.

Xi also called for Fujian to lead the way in realizing his medium-term economic goal of “blazing a new path” for technological innovation.

Our take: That’s all fine and dandy as a plan to drive economic growth and upgrading over the next decade – but in the short term, the economy simply needs more cash from the central government.

Corporates

The Cybersecurity Association of China (CSAC) released an article calling for regulators to launch a cybersecurity review against Intel – arguing that the company is acting against China’s interests.

• It’s still not clear whether an investigation will move forward, but needless to say, it’s not great news for Intel.
• And it makes us wonder, is China gearing up to make life difficult for companies complying with US sanctions?

Meanwhile, economic coercion – the kind all foreign companies in China should be worried about – remains on the brain in Beijing as well.

• Last Thursday and Friday, policymakers met for an annual two-day conference on China’s export controls – seeking to bolster their ability to hit back against the US and its allies.

Econ and finance

The State Council Research Office (SCRO) – the Premier’s chief policy advisory body – just got a new director, and he’s a specialist on trade issues.

• This comes as China is seeking to boost trade with the Global South, navigate intensifying pushback from developed economies on its booming trade surplus, and potentially prepare for a renewed trade war with a second Trump administration.

Elsewhere on the fiscal front, Beijing is experimenting with boosting some creative sources of tax revenue.

• They issued a new national pilot program to tax water use.
• And they’re reportedly demanding that the ultra-rich pay tax on income derived from overseas investments.

Foreign affairs

On the foreign affairs front, officials were working it across a range of geographies – including the Middle East, South Asia, Southeast Asia, and Europe.

• Top diplomat Wang Yi placed separate calls to Israeli Foreign Minister Israel Katz and Iranian Foreign Minister Seyyed Abbas Araghchi.
• Premier Li Qiang arrived in Islamabad, Pakistan, for the Shanghai Cooperation Organization (SCO) Council Heads of Government meeting.
• Before heading to Pakistan, Li stopped off in Hanoi to meet with senior Vietnamese officials.
• He also met with European Council President Charles Michel on the sidelines of the ASEAN summit in Laos.
• Meanwhile, Xi Jinping hopped on a call with outgoing President Joko “Jokowi” Widodo to thank him for his “important contribution to the China-Indonesia friendship.”

As always, it was a busy week in China.

• Thank goodness Trivium China is here to make sure you don’t miss any of the developments that matter.