Anticipation and Disappointment: Beijing’s Ministry of Finance Briefing Analysis

The highly anticipated Ministry of Finance briefing in Beijing on Saturday left markets buzzing with excitement and speculation. With hopes of a massive fiscal stimulus package, investors were eagerly awaiting Finance Minister Lin Fo’an to make a bold and expensive statement of intent.

However, what they got was a more measured approach from Mr. Lin, who stated that he had an arsenal at hand and would be prepared to use it. While not the Hollywood-style announcement that the market had hoped for, analysts from Societe Generale believe that the market should not be disappointed.

The Societe Generale team points out that the NDRC, as a policy coordinator, does not have the authority over fiscal decisions exceeding 1 trillion yuan, which can only be approved by the National People’s Congress. Despite this, they argue that smaller support measures can still be implemented in the short term without increasing bond issuance quotas.

Following the briefing, the Shanghai Shenzhen Index jumped 1.3% on Monday morning, with the property sector surging 3.2% and engineering and construction firms also making strong gains. Iron ore prices softened initially but rebounded later in futures trading, leading to gains in Australia’s mining sector.

While China is expected to increase debt in the future, analysts from ANZ believe that the impact on growth and inflation will not be immediate. They have left their GDP forecasts unchanged for 2024 and 2025, noting that the stimulus package may be insufficient to ease China’s deflation.

Overall, the briefing reinforced the view that fiscal policy will be redirected towards domestic demand, with a focus on stabilizing the housing sector, promoting consumption, and supporting employment. Despite the lack of detail, the Societe Generale team believes that success will depend on managing market expectations and avoiding unsustainable momentum.

In the end, the real question for long-term investors is whether Beijing is truly committed to lifting China out of its debt deflationary downward spiral. The signals since late September have been positive, indicating a shift towards a more balanced and sustainable approach to economic growth.