MoF underwhelms

Unexpectedly, China’s finance ministry (MoF) used its Saturday press conference to focus on local government debt, rather than fiscal stimulus.

ICYDK: All eyes were on Saturday's MoF presser, in the hopes it would deliver a fiscal stimulus package.

• It didn’t.

Instead, Finance Minister Lan Fo’an pledged a one-off "relatively large" issuance of central government debt to help pay off local government hidden debt, describing it as "the most powerful measure to support debt reduction in recent years.”

Lan said the measure would:

• "Greatly reduce the pressure on local debt, free up more resources for economic development, [and] boost the confidence of business entities."

Lan didn't say how much Beijing would deploy, but noted that MoF has so far cleared local governments to issue RMB 1.2 trillion of special purpose bond (SPBs) to pay down "hidden debts," like those of local government financing vehicles.

• Lan implied the new program will be significantly bigger.
• He also said local governments can continue allocating some SPBs toward paying down hidden debts.
• Local authorities can also use SPBs to buy back idle land and acquire developers’ unsold housing inventory.

Additionally, Lan said MoF will issue special treasury bonds to replenish the core tier-one capital of China’s big six commercial banks.

Get smart: The collapse of land sales has left local governments desperately short of cash, so many have resorted to austerity policies.

• The central government is now looking to flip the script, but it seems to be slow rolling the announcement of a concrete support package.

Get smarter: Markets were hoping for a clear and concrete fiscal stimulus plan, which the MoF presser failed to deliver.

Our take: The economy needs more help.

• It’s unclear exactly when Beijing will deliver it, but all signs still point to a fiscal package coming soon.