China Shores Up Property Sector, Signals More Spending Is Coming

(Bloomberg) — China promised new measures to support the property sector and hinted at greater government borrowing to shore up the economy, as authorities seek to put a floor under the country’s growth slowdown.

Most Read from Bloomberg

Local governments will be allowed to use special bonds to buy unsold homes, Finance Minister Lan Fo’an announced at a briefing Saturday, without giving an amount. He hinted at room for issuing more sovereign bonds and vowed to relieve the debt burden of local governments, signaling a possible rare revision to the budget that could come in the next few weeks.

“The central government still has quite large room to borrow and increase the deficit,” Lan said, without providing a time frame.

While Lan fell short of putting a price tag on any additional stimulus — potentially disappointing investors — the measures announced were largely in line with economists’ expectations of steps to ease the property sector crisis and debt woes that have forced local governments to tighten their belts. Officials said China will also issue special sovereign notes to boost capital at its largest state-owned banks, a move expected to spur lending to lift the economy.

“The announced fiscal supports to mitigate local debt risks, to refill state banks’ capital gap, to give the property sector a helping hand are exactly what the market and investors are expecting,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc.

China’s sovereign bonds were seen fluctuating in a small range after the Finance Ministry pledged more stimulus to support the economy but stopped short of giving details. The 10-year government bond yield was indicated little changed at around noon, erasing drops of as much as two basis points, according to traders.

Pang and some other economists expect more details of fiscal stimulus to be published after the meeting of top lawmakers in the coming weeks, including the sale of more treasury debt and a mid-year revision of the budget.

The Standing Committee of the National People’s Congress, the Communist Party-controlled parliament that oversees the government budget, used its meeting last October to approve additional sovereign debt and raise the budget deficit ratio to about 3.8% of gross domestic product.

What Bloomberg Economics Says…

“The most important forward-looking signal is that it will likely provide meaningful funding solutions to help local governments resolve their debt problems. With no immediate new money in sight, central policymakers are likely to focus on supporting local governments to deliver their budgeted spending, while making use of existing resources to stabilize the housing market.”

— Chang Shu, David Qu

Read the full note here.

“The tone is positive — the MOF will likely add new quota of treasury and local bonds,” said Zhaopeng Xing, senior strategist at Australia & New Zealand Banking Group. “We expect 1 trillion yuan of ultra-long treasury and 1 trillion yuan of local bonds to be announced.”

Ahead of the event, investors and economists surveyed by Bloomberg expected the government to commit as much as 2 trillion yuan in new fiscal stimulus.

Fiscal support has been the biggest missing piece in a stimulus package Beijing started to deploy in late September, in an unprecedented push led by the central bank that ranged from interest-rate cuts to aid for the property and stock markets.

More expansionary public spending is deemed crucial to reviving the world’s second-largest economy, which is in deflation and risks missing the government’s 2024 growth target of around 5%.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, said an increase in fiscal deficit “would be a meaningful shift of fiscal policy stance” as it would help boost domestic demand and mitigate the deflationary pressure in the economy.

–With assistance from James Mayger, Wenjin Lv, Ocean Hou, Yujing Liu and Shuiyu Jing.

(Updates with more details)