MNI: China Stimulus To Keep 2024 Growth Over 5%, Advisors Say

Fiscal stimulus announced this week will keep China’s economy growing at over 5% next year, and the People’s Bank of China will boost liquidity and cut reserve requirements to facilitate an additional CYN1 trillion in issuance of treasury bonds, policy advisors and economists told MNI, adding that central government borrowing is likely to remain relatively high in 2024.

The stimulus comes after data disappointed since the second quarter and is likely to boost Q4 GDP growth to 5.3%, taking the year’s total growth to 5.3-5.5%, said Lian Ping, chairman of China Chief Economist Forum. While the additional CGB issuance announced on Tuesday is earmarked for the fourth quarter, half of the funds, to be allocated to local governments for reconstruction work and strengthening infrastructure after summer floods, will be spent next year, which Lian said would keep growth above the 5% mark.

The effect of the extra borrowing this year will be mainly to plug funding gaps, said Xu Hongcai, deputy director at the China Association of Policy Science’s Economic Policy Commission, noting that the floods had further pressured local governments’ already strained budgets.

“The economy is likely to grow by at least 5.2% this year,” said Xu, adding that the recent rebound in consumption should continue in Q4 and exports would benefit from improved China-U.S. relations. Chinese commodity importers on Monday agreed to purchase a significant amount of U.S. agricultural goods, mostly soybeans, he noted.

RRR CUT

The Chinese government is now set to issue a record CNY2 trillion in debt over November and December, according to Guangfa Securities. (See: MNI: China To Launch Debt Swaps To Address Implicit Liabilities)

To support the issuance, People’s Bank of China will likely increase liquidity injections via the medium-term lending facilities and reverse repos and could also cut reserve requirement ratios by a further 25 basis points before the end of the year, Xu added. Lian also saw a reserve requirement cut as likely, noting that banks hold over 80% of government debt.

The PBOC should also push lenders to increase loans to infrastructure projects to accelerate use of the funds, leveraging them by about six times, Lian said. But while the Bank could guide down wholesale money-market rates by increasing liquidity injections and “window guidance”, benchmark rate cuts would weaken the yuan and are unlikely, he said. (See MNI PBOC WATCH: PBOC Seen Providing Liquidity For Bond Sales)

HIGHER DEFICIT RATIO

The Ministry of Finance on Wednesday noted this year’s fiscal deficit will now reach CNY4.88 trillion, or 3.8% of GDP, rather than the 3% targeted at the beginning of 2023.

An advisor who asked for anonymity said the purpose of the additional borrowing was to ensure stable growth in 2024 as 2023 ends, with domestic demand still sluggish. It will take time to use the new funds, but the CNY1 trillion would contribute 10 times its volume to GDP expansion in the long run, the advisor said, adding that the government will run a relatively high fiscal deficit over the next two years.

Ji Fuxing, head of China government debt research at the National Institution for Finance & Development, said that next year authorities should target a fiscal deficit of between 3-4% of GDP, likely 3.5%, issuing more CGBs to fund major cross-region infrastructure and public services to reduce spending pressure on local governments.

In addition to the CNY500 billion treasury bonds carried over to 2024, about CNY4 trillion of fiscal funds would also be available, said Ji, noting that government-led investment would continue to act as a growth driver alongside tax and fee cuts for small-and-medium enterprises and technology companies. The government should set a 2024 growth target of at least 5%, to help stabilise expectations and employment, he said.