BREAKINGVIEWS-China’s stimulus priorities are plain to see

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.

(Editing by Una Galani and Ujjaini Dutta)

((For previous columns by the author, Reuters customers can click on CHAN/ KaSing.Chan@thomsonreuters.com))