Nomura_China What's next II

Summary of Key Points from the Conference Call Industry Overview - The focus is on the Chinese economy and its fiscal stimulus measures in response to economic challenges, particularly in the context of the property market and local government finances. Core Insights and Arguments 1. NDRC Press Conference Reaction: The National Development and Reform Commission (NDRC) press conference on October 8 did not meet market expectations, leading to significant stock market corrections. The Hang Seng Index fell by 9.4%, marking its largest drop since 2008, while the CSI300 index initially rose by over 10% but closed up only 5.9% on the same day [2][3][4]. 2. Expected Fiscal Stimulus: A fiscal stimulus package is anticipated, with the Ministry of Finance (MOF) expected to announce details on October 12. The overall stimulus could be capped at 3% of GDP per year, primarily aimed at addressing local government fiscal gaps due to declining land sales revenues [2][4][18]. 3. Focus Areas for Stimulus: The stimulus is likely to focus on: - Increasing fiscal transfers to local governments and allowing them to borrow more. - Enhancing social security spending for lower-income groups and encouraging childbirth. - Direct funding for delayed residential projects that have been pre-sold [5][18]. 4. Funding Gaps: The fiscal revenue gap is estimated at RMB 6.4 trillion, driven by a significant decline in land sales revenue, which fell by 25.4% year-on-year as of August 2024. This has led to a reliance on central government transfers, which are expected to increase by RMB 1.0 trillion annually over the next two years [19][22]. 5. Government Bond Issuance: The NPC is expected to approve an additional RMB 2.0 trillion in central government bonds (CGBs) by the end of October, which will be used to support various fiscal measures. The total CGB issuance for 2025 could reach RMB 3.0 trillion [10][11]. 6. Property Market Challenges: Despite recent easing measures, the property sector remains under pressure. The focus is on delivering pre-sold but unfinished homes, with estimates suggesting that around RMB 3.0 trillion may be needed to address this issue effectively [29][30]. Other Important but Overlooked Content 1. Local Government Financial Struggles: Local governments are facing severe financial difficulties due to the collapse in land sales, which previously accounted for 54.6% of their revenues in 2020. The central government has increased transfer payments to local governments from RMB 8.3 trillion in 2020 to RMB 10.3 trillion in 2023 [22]. 2. Social Welfare Reforms: There are discussions about increasing pension benefits for rural elderly citizens and waiving medical insurance fees for vulnerable groups, which could significantly impact consumption patterns and support economic recovery [26][27]. 3. Childbirth Incentives: The government is considering subsidies for families with multiple children to address declining birth rates, which have seen a 45% drop since 2018. This could involve substantial financial commitments, although the scale of implementation remains uncertain [27][28]. 4. Slow CGB Issuance: The issuance of the RMB 1 trillion ultra-long special CGBs has been slower than expected, with only RMB 752 billion issued by the end of September 2024. This slow pace contrasts sharply with previous years' issuance rates [13][14]. 5. Future Policy Meetings: Key upcoming meetings include the Politburo meeting in late October and the annual central economic work conference in mid-December, which may provide further insights into fiscal policy directions [9]. This summary encapsulates the critical insights and potential implications for the Chinese economy and its fiscal policies, particularly in light of the ongoing challenges in the property market and local government finances.