China’s stimulus priorities are plain to see

Sunac China Holdings

14/11/2024 11:00

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Chan Ka Sing
       HONG KONG, Nov 14 (Reuters Breakingviews) - Sometimes
interpreting Chinese policymakers' intentions can be
straightforward. Recent economic planning meetings talk up the
need to reorganise local government debt and to reflate asset
prices. This lays out Beijing's stimulus priorities, and implies
measures involving heavy spending may only follow if other
efforts to re-invigorate the economy fail.
    For months, investors have consistently expressed
disappointment at the lack of support that directly puts more
money into consumers' pockets. Chinese stocks tumbled after the
country's legislature on Friday revealed a 10 trillion yuan
($1.4 trillion) plan to help local governments clean up their
off-balance sheet debts. 
    Market participants cannot blame Beijing for not guiding
them on what is coming, however. In policy meetings through
2023, including the Central Financial Work Conference, where top
regulators gather to set their priorities for the year-ahead,
Beijing repeatedly called for “comprehensive measures” to
dissolve risks stemming from local governments' so-called
"hidden debts". The finance ministry pegs these at 14.3 trillion
yuan, a small fraction of International Monetary Fund estimates.
    Readouts from gatherings of the Communist Party's Politburo
this year have pointed to a growing urgency on shoring up home
prices. In September, right before Beijing rolled out a raft of
new policies, it had called for efforts to “reverse the real
estate market downturn”. Another agenda item in sharp focus this
year is rebuilding confidence in the capital market.
    Planners want to make it easier for local governments to
meet their basic spending commitments including on pensions and
healthcare. They also want to tackle the deflationary mindset:
Chinese people are more likely to spend their savings if they
believe the value of their properties or equity market holdings
are going up, instead of down. 
   Beijing is pinning hopes on this combination of measures to
improve expectations. On Wednesday, planners unveiled tax
incentives on home and land transactions. Sunac  1918.HK , a
major developer, rose 5% on early Thursday. Officials are making
other consumer-friendly adjustments too, such as allowing more
public holidays starting 2025. Helicoptering cash to consumers,
however, remains a last resort. 
     
    CONTEXT NEWS    
The Ministry of Finance announced on Nov. 13 a series of tax
incentives to lower home and land transactions. Residents will
also be exempted from paying value-added tax if they sell their
homes after two years of purchase.

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Graphic: China's stimulus plan has underwhelmed markets    https://reut.rs/3YHQ0yO
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 (Editing by Una Galani and Ujjaini Dutta)
 ((For previous columns by the author, Reuters customers can
click on  CHAN/  mailto:KaSing.Chan@thomsonreuters.com))