The "boots" of the fiscal increment policy are half on the ground! How does the force affect the geometry?

At the time of the stock market correction, the much-anticipated fiscal increment policy has gradually become clear.

On October 12, Minister of Finance Lan Foan announced at the press conference of the State Council Information Office four major fiscal increment policies to be launched in the near future:

· Increase the large-scale debt limit at one time to replace the hidden debts of local governments, and vigorously support local governments in resolving debt risks;

· Issuing special treasury bonds to support large state-owned commercial banks in replenishing core Tier 1 capital and enhancing banks' ability to resist risks and provide credit;

· Superimpose the use of local government special bonds and other tools to support and promote the real estate market to stop falling and stabilize;

· Increase support and protection for key groups and enhance overall consumption capacity.

"Countercyclical adjustment is by no means just about the above four points, these are the policies that have entered the decision-making process at the moment, and we have other policy tools that are also being studied. For example, the central government still has a lot of room for borrowing and raising the deficit. Lan Foan added.

A number of financial and tax experts told the first financial that the Ministry of Finance announced the fiscal increment policy is fully in line with the reasonable expectations of the market, and the Minister of Finance "the central finance has a greater room for borrowing" and other expressions, but also to give the market more imagination space, although due to the amount of additional debt needs to be approved by the Standing Committee of the National People's Congress, can not give a specific figure at the moment, but is expected to be in late October The Standing Committee of the National People's Congress meeting to disclose the increase in debt-related data. An important signal from the press conference of the Ministry of Finance is that the central government has the ability and space to solve the local debt problem and the financial difficulties at the grassroots level that the market is worried about.

So how much debt limit will be added to replace implicit debt? What will be the form and impact of the displacement? Will it increase the deficit and increase the debt?

The trillion-level debt will be launched

Undoubtedly, among the incremental policies issued by the Ministry of Finance, the most concerned and short-term impact is to support local governments to resolve debt risks. At present, the pressure of localized debt is relatively large, and the amount of debt repayment in some places is relatively large, coupled with the sluggish growth of fiscal revenue in recent years and the unabated rigid expenditure, the pressure of debt reduction has even been transmitted to "ensure basic people's livelihood, wages, and operation", and affect some government investment.

According to Lan Foan, the prevention and resolution of local government debt risks is a major issue related to development and security, and to sustainable financial development. Since 2024, the Ministry of Finance has arranged a debt limit of 1.2 trillion yuan to support local governments in resolving existing hidden debts and digesting the government's arrears to enterprises. In order to alleviate the pressure on local governments to reduce debt, in addition to continuing to arrange a certain amount of bonds in the new special bond limit every year to support the resolution of existing government investment project debts, it is planned to increase the debt limit of a larger scale at one time to replace the stock of implicit debts of local governments, and increase efforts to support local governments to resolve debt risks.

Lan Foan stressed that this impending policy is the largest measure to support debt in recent years, which is undoubtedly a timely policy rain, which will greatly reduce the pressure of local debt, free up more resources to develop the economy, boost the confidence of business entities, and consolidate the "three guarantees" at the grassroots level.

Yang Zhiyong, director of the Fiscal and Taxation Research Center of the Chinese Academy of Social Sciences, told Yicai that on the whole, the fiscal increment policy is in line with expectations. Only with the necessary policy intensity can we give better play to the role of fiscal policy in reverse adjustment. Judging from the information at the press conference, the fiscal policy can be fully expected, although due to legal procedures, some data are not provided, but the press conference has said that the increase in the amount of debt on a larger scale can be reasonably expected by the market and society. To resolve debt risks, local governments must first make active efforts, and at the same time, according to the actual situation, the central government will help them form a joint force to solve problems in the course of development.

"Some market participants are more worried about the risk of local debt, and this press conference will clearly launch a measure to support debt in recent years, which is actually a very clear and major signal to the market, that is, the central government is fully capable of having room to promote the solution of local debt and other problems." Qiao Baoyun, dean of the Institute of Public Finance and Policy of the Central University of Finance and Economics, told Yicai.

Many market participants are very concerned about the size of the upcoming larger-scale debt limit and how to replace the implicit debt.

In 2023, when the central government required the introduction of a package of debt to effectively prevent and resolve local debt risks, the Ministry of Finance arranged more than 2.2 trillion yuan of local government bonds to support local governments, especially high-risk areas, to resolve existing debt risks and clear up arrears of corporate accounts, and local government debt risks were alleviated as a whole.

According to data from the Ministry of Finance, by the end of 2023, the balance of implicit debt included in the government debt information platform nationwide has decreased by 50% compared with the 2018 map, and the debt risk is controllable.

Wen Laicheng, a professor at the Central University of Finance and Economics, told Yicai that some local governments have been difficult to resolve hidden debts by their own means, so the Ministry of Finance has increased the debt limit this time to replace hidden debts in the form of government bonds, reduce the debt of local government financing platforms, and reduce potential default risks and regional financial risks. "According to the scale of implicit debt due to the calculation of relevant institutions, it may be necessary to increase the debt limit by about 2 trillion yuan."

Ding Shuang, chief economist of Greater China and North Asia of Standard Chartered Bank, told Yicai that in the fiscal increment policy, the policy of supporting localized bonds exceeded market expectations. As the Ministry of Finance has clarified that a one-time increase in the debt limit is the largest policy in recent years, it is expected that this amount will exceed 2.2 trillion yuan in 2023, or at least not less than 1 trillion yuan.

Hu Hengsong, deputy general manager of Caida Securities, told Yicai that according to the agency's calculations, combined with the progress of debt, the current remaining hidden debt balance is expected to be no less than 10 trillion yuan, and the Ministry of Finance emphasized that the increase in a larger amount of debt is expected to be several trillion yuan.

In fact, as early as 2015 and 2018, China issued more than 12 trillion yuan of government bonds to replace government debt in the form of non-government bonds, which greatly reduced the interest burden on local government debt and effectively alleviated the pressure on debt repayment. A number of experts interviewed predict that from the perspective of this round of cyclical debt quota, the scale of implicit debt swap quota is expected to be larger in the next few years, and may even be similar to the previous round of bond swap quota.

Qiao Baoyun said that this round of implicit debt swap is similar to the 12 trillion replacement bonds launched in 2015, the purpose is to make the implicit debt that is not in the government budget transparent, and realize the implicit debt into the budget through the government bond swap, so that the previous implicit debt is transparent, and extend the debt term to reduce the interest burden, and the budget management is more standardized, which is conducive to preventing debt risks.

Of course, because the Ministry of Finance's press conference did not clarify whether the increase in the debt limit used to replace local implicit debts is an increase in the local debt limit or an increase in the central debt limit, experts have different views. Most experts still expect to continue to increase the local debt limit to replace local implicit debt, essentially extend the maturity of local debt, and reduce the interest burden of local debt, but the main debtor is still local government. However, there are also different views.

Lu Bingyang, executive director of the Institute of Finance and Taxation of Chinese University, told CBN that the upcoming increase in the form of large-scale debt is unlikely to be an increase in the amount of local refinancing bonds and the amount of new local special bonds, which cannot really reduce the local debt burden and may even cause new debt. However, treasury bonds are generally not earmarked, and the resolution of local debts requires special funds, so it is very likely that the debt will be formalized in the form of increasing the quota of special treasury bonds.

"It should be noted that the current resolution of debt risks is a short-term measure, and it is still necessary to pay attention to the construction of a long-term mechanism to prevent local debt risks, so as to ensure that provinces, cities and counties with high debt risks can not only truly reduce debts but also develop steadily." Lu Bingyang said.

The final increase in the amount and form of debt remains to be disclosed by the authorities, and the meeting of the Standing Committee of the National People's Congress in late October is the first important observation window. The impact of the Ministry of Finance's efforts to support localized bonds is foreseeable.

Luo Zhiheng, chief economist of Guangdong Kai Securities, told Yicai that increasing the debt limit to replace the stock of implicit debts of local governments is of great significance to the financial economy. The debt swap has made some implicit debts explicit, and the debts have become more open and transparent. The process of debt replacement is also a process of reducing risks, reflecting that the essence of debt reduction is to resolve risks.

Luo Zhiheng believes that the debt swap has reduced the pressure on local governments to turn into debt, and local governments can free up more financial resources and energy to develop the economy and provide public services. Debt swap will help local governments better implement tax cuts and fee reductions, and the phenomenon of "arbitrary fines and fees" in some areas will be significantly alleviated or even eliminated, which is conducive to improving the business environment.

It remains to be seen whether the deficit will increase

Compared with the increase in the government debt limit to support debt, it is still to be clarified, and the Ministry of Finance has revealed a major measure to supplement financial resources at the press conference.

Lan Foan introduced at the meeting that the central government has arranged 400 billion yuan from the local government debt balance limit to supplement the comprehensive financial resources of local governments, support local governments to resolve the existing government investment project debts and digest the government's arrears to enterprises.

Ding Shuang told reporters that because the balance of local government debt is still 1.5 trillion yuan away from the limit, the Ministry of Finance used 400 billion yuan to supplement the local comprehensive financial resources, and it is likely to use the local government general bond limit space, which is within the limit approved by the National People's Congress, so there is no need for the approval of the National People's Congress. However, this move is equivalent to an increase of 400 billion yuan in local finance. It remains to be seen whether the central government will increase its fiscal deficit and issue more treasury bonds in the future.

Among the four incremental measures mentioned above, increasing the debt limit to support localized debt only adjusts the debt limit, but does not increase the fiscal deficit. The issuance of additional special treasury bonds supports the replenishment of core Tier 1 capital by large state-owned commercial banks, and the issuance of additional special treasury bonds is not included in the deficit. However, the Ministry of Finance also said that other incremental policy tools are also being studied, including room for the central government to increase the deficit.

In addition, Lan Foan said at the above meeting that it is expected that the growth rate of general public budget revenue across the country will be less than expected. I can responsibly tell you that China's finances are resilient enough to balance revenue and expenditure and achieve the annual budget target by taking comprehensive measures.

According to data from the Ministry of Finance, the national general public budget revenue in the first eight months of this year was about 14.8 trillion yuan, a year-on-year decrease of 2.6%. The national general public budget expenditure was 17.4 trillion yuan, a year-on-year increase of 1.5%. This is lower than the expected growth rate of general public budget revenue (3.3%) and expenditure (4%) for the whole year at the beginning of the year.

Qiao Baoyun said that this year's economic growth has slowed down, and fiscal revenue is lower than expected, but in the end, to achieve a balance between revenue and expenditure, it is nothing more than to increase part of revenue through asset revitalization and disposal, and reduce part of expenditure through government tightening, and if the gap between revenue and expenditure is higher than the budget at the beginning of the year, it will be solved by expanding the deficit and issuing additional debt. On the whole, China's fiscal maneuver has a lot of room for maneuver, and it is completely able to achieve a balance between revenue and expenditure.

According to Ding Shuang's analysis, the finance minister's statement that he can complete the annual budget target this year should mean that the budget size of the national general public budget expenditure (about 28.6 trillion yuan) can be fully completed, and under the condition that the revenue cannot achieve the expected target, the balance of revenue and expenditure can be achieved by increasing other additional revenues, and the other is to increase the fiscal deficit and issue additional treasury bonds. It remains to be seen whether the deficit will increase and the issuance of additional government bonds.

From past experience, there are many tools to achieve a balance between revenue and expenditure, such as the use of budget stabilization adjustment funds; increase the profits of state-owned enterprises, specific state-owned financial institutions, and franchised institutions; increase the revitalization of stock resources and assets to increase income; Liquidation and recovery of carry-over balance funds; Dispatch treasury funds, etc.

Experts generally believe that the October meeting of the NPC Standing Committee will be an important window to observe whether the fiscal deficit will increase.

(Interviewee Lv Bingyang is the executive director of the Institute of Finance and Taxation of Renmin University of Chinese and a senior researcher of the Chongyang Institute of Financial Research, this article is transferred from Hunan Daily on October 13, welcome to pay attention to the Chongyang Sina Weibo: @人大重阳, WeChat public account: rdcy2013)