On October 12th, the Ministry of Finance held a press conference with the theme "Increasing the Counter-Cyclical Adjustment of Fiscal Policy and Promoting High-Quality Economic Development".

At this conference, the intensity of fiscal policy was rare in recent years, with incremental policies involving substantial financial commitments, and it was explicitly stated that the scale was large, with significant room for further expansion. Due to the need for legal procedures, the specific amounts will be announced soon.

Some key expressions included: "A significant increase in debt limits", "A plan to increase debt limits on a one-time basis to a large scale, to replace the existing implicit debt of local governments, this policy is the most significant measure to support debt resolution in recent years", "Counter-cyclical adjustments are not limited to the above four points, the central finance still has a large space for borrowing and increasing the deficit."

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The press conference by the Ministry of Finance released six positive signals: First, the overall scale is large, with an increase in deficit scale and additional national bonds. Due to the need for legal procedures, the specific amounts will be announced soon, and the scale is expected to be large. Second, the expansion of special bonds will significantly increase debt limits, and for the first time, they will be allowed to be used to purchase idle land and existing housing, with an unprecedented intensity. Third, there will be a greater effort to resolve debt, with a plan to increase debt limits on a one-time basis to a large scale. Fourth, efforts will be made to stabilize the real estate market, including but not limited to special bonds, special funds, and tax policies. Fifth, there will be increased spending on livelihoods to stimulate consumption. Sixth, special national bonds will be issued to support large state-owned commercial banks in replenishing capital and easing the pressure on banks' net interest margins.

Although no specific incremental figures were mentioned, the market was shown the sincerity of the policy department, reflecting the professional responsibility of the Ministry of Finance. Fiscal policy has a decision-making process, some of which requires approval by the National People's Congress, making it more complex than monetary policy. It is expected to be announced in late October. Against the backdrop of high market expectations, this conference released a package of incremental policy plans, involving investment, debt resolution, storage, stabilization of the real estate market, bank capital injection, and livelihoods.

In addition to the substantial financial input, an important aspect of fiscal and monetary policy is the "declaratory effect", conveying a strong determination and signal, similar to the central bank's press conference on September 24th.

From the highest meeting on September 26th, to the intensive press conferences held by important economic departments, announcing a package of incremental policies, the determination is strong, and the "declaratory effect" is evident, opening the prelude to large-scale economic stimulation and boosting market confidence.

With the introduction of large-scale economic stimulus policies, there is an expectation for the Chinese economy to bottom out and recover, for the real estate market to stabilize, for the stock market to flourish, for global funds to flow into RMB assets, and to boost morale in one go.

1. Overall Tone: Large scale, substantial financial commitment, with significant room for further expansion, promoting economic recovery and improvement.The Minister of Finance clearly stated: "Focusing on stabilizing growth, expanding domestic demand, and mitigating risks, the Ministry of Finance will introduce a package of targeted incremental policy measures in the near future."

The incremental policies mainly include:

"Firstly, to strengthen support for local governments in resolving government debt risks, a significant increase in debt limits will be implemented to support local governments in addressing implicit debts, allowing them to free up more energy and financial resources to promote development and ensure people's livelihoods.

Secondly, special treasury bonds will be issued to support large state-owned commercial banks in replenishing their core tier-one capital, enhancing their risk resistance and credit extension capabilities, and better serving the development of the real economy.

Thirdly, a combination of local government special bonds, special funds, and tax policies will be used to support and promote the stabilization of the real estate market.

Fourthly, to increase support and protection for key groups, one-time living subsidies have been distributed to people in difficulty before the National Day. Next, efforts will be intensified to reward and assist students in difficulty, enhancing overall consumption capacity.

Let me add that counter-cyclical adjustments are not limited to the above four points. These four points are policies that have already entered the decision-making process, and we are also studying other policy tools. For example, the central finance still has a considerable debt-raising space and room for increasing the deficit."

Although no specific total stimulus amount was mentioned this time, it is expected to be of significant magnitude and ample space. It is worth noting that recently, for the first time, the People's Bank of China and the Ministry of Finance have established a joint working group to strengthen their close cooperation in the buying and selling of government bonds, continue to enhance policy coordination, and optimize relevant institutional arrangements.

The Ministry of Finance has approximately 2.3 trillion yuan in funds available for use within its authority, expected to be spent in the fourth quarter. Currently, China's fiscal scale is 4.06 trillion yuan in deficit scale + 3.9 trillion yuan in local special bonds + 1 trillion yuan in new long-term special treasury bonds not included in the deficit + 1 trillion yuan in special treasury bonds issued in the fourth quarter of last year, with a total general public budget expenditure scale of 28.55 trillion yuan for the year. In terms of special bonds, 3.6 trillion yuan in new special bonds have been issued from January to September. With the remaining issuance quota and funds already issued but not yet used, there are 2.3 trillion yuan in special bond funds available for use across various regions in the last three months of this year.

It is expected that the deficit scale will be increased, and the issuance of treasury bonds and special bonds will be increased. According to the budgetary procedures, adjustments to the deficit ratio and special treasury bonds require approval by the National People's Congress. It is expected that the Standing Committee of the National People's Congress will announce this in late October. Although the specific amount was not disclosed at this press conference, it was clearly stated that "the specific amount of funds will be made public in a timely manner after going through the legal procedures."2 Local Debt Reduction: A One-Time Increase in Debt Quota on a Large Scale, the Strongest Measure in Recent Years

The Ministry of Finance stated, "We plan to increase the debt quota on a large scale at one time to replace the existing implicit local government debt. This policy is the strongest measure to support debt reduction in recent years." This is a timely rain that will greatly alleviate the pressure on local governments, freeing up more resources to support economic development and consolidating the grassroots "three guarantees."

Since the issuance of the "New Budget Law" in 2014, the central government has historically led three rounds of large-scale local government debt reduction actions, and we are currently in the fourth round.

The first round of debt reduction (2015-2018) saw the Ministry of Finance issue a cap on debt replacement bonds for each province based on the maturity of provincial debts. Local governments issued debt replacement bonds within the quota to replace existing government debt, with a total issuance of approximately 12.2 trillion yuan in debt replacement bonds.

The second round of debt reduction (2019) mainly selected counties with significant debt pressure as pilot areas for resolving implicit debt, issuing 157.9 billion yuan in debt replacement bonds to replace implicit debt.

The third round of debt reduction (December 2020-June 2022) expanded the pilot program for resolving implicit debt in counties to 26 provinces and cities, and issued special refinancing bonds to repay existing debt, with a total issuance of 1.13 trillion yuan in special refinancing bonds. Many provinces announced the completion of implicit debt resolution tasks beyond expectations, with Beijing and Guangdong achieving zero implicit debt across their jurisdictions.

The fourth round of debt reduction (from 2023 to the present), in the second half of 2022, some localities showed signs of debt risk. The Central Political Bureau meeting in July 2023 called for the development of a comprehensive debt reduction plan. The Ministry of Finance arranged more than 2.2 trillion yuan for local government bonds in 2023 and 1.2 trillion yuan for 2024 to support localities in resolving existing debt risks and clearing overdue corporate accounts.

This time, it is the "strongest measure to support debt reduction in recent years," and has recently been approved by the National People's Congress Standing Committee.

The strongest round of debt reduction in the first three rounds was from 2015 to 2018, with a total issuance of 12.2 trillion yuan in debt replacement bonds over four years. This round of debt reduction has a large scale, with 3.4 trillion yuan in local government debt quotas issued for 2023 and 2024, and there is hope for further issuance of a large scale of debt quotas in the future.

According to the Ministry of Finance data, by the end of 2023, the implicit debt included in the national government debt information platform has decreased by 50% compared to the baseline in 2018. According to the IMF (International Monetary Fund) estimates, by the end of 2018, the scale of implicit local government debt in China reached 30.9 trillion yuan. It is expected to resolve most of the implicit debt of local governments.In recent years, local governments have experienced a significant revenue and expenditure gap, with non-tax revenues such as fines and confiscations abnormally increasing. Against the backdrop of declining tax revenues, from January to August, the national non-tax income reached 2.67 trillion yuan, with a year-on-year growth of 11.7%. Recently, media reports have frequently mentioned that many enterprises have reported an increase in arbitrary fines, inspections, and seizures by some local governments, and even violations of cross-regional law enforcement and profit-driven law enforcement. There have been media exposures of the adverse phenomenon of "distant ocean fishing," which has damaged the local business environment and undermined the confidence of the private economy. Moreover, the phenomenon of local governments' wage arrears has become widespread, with a large number of small and medium-sized enterprises being owed project funds by local governments, leading to a wave of layoffs and salary cuts. What's more serious is that market confidence has been hit, businesses lack a sense of security, private investment is negative growth, and the "lying flat" culture is prevalent.

We previously suggested the introduction of a special national bond of 4-5 trillion yuan to alleviate the financial difficulties of local governments and reduce the burden on enterprises that are owed money. At the same time, a nationwide unified debt resolution plan should be formulated to allow local governments, financial institutions, and other stakeholders to share responsibilities; regulations and administrative measures should be introduced to establish a local government asset trading mechanism, allowing local governments to resolve existing debts with assets. Ultimately, the reforms of the Third Plenary Session should be completed, the balance sheets of governments at all levels should be compiled, the role of local people's congresses should be played, and the emergence of new debts should be controlled.

If, according to the arrangements of the highest meeting, "regulate law enforcement and regulatory actions involving enterprises. Introduce a law to promote the private economy to create a good environment for the development of the non-public sector of the economy." According to the proposal made by the National Development and Reform Commission, "more inclusive and prudent regulation and flexible law enforcement methods should be adopted. Timely reminders should be given to places with abnormal growth in fines and confiscations, and supervision should be carried out when necessary." This will greatly boost the confidence of the private economy, increase the sense of security of entrepreneurs, and improve the local business environment. Subsequent expectations are for specific implementation and accountability for typical cases of abnormal growth in fines and confiscations.

It should be said that the introduction of this series of policies is very timely. If well implemented, their policy effects can be comparable to a 10 trillion yuan economic stimulus policy, and the spring of the private economy is expected to come again. If the confidence of the private economy is boosted, the current large-scale economic stimulus policy can have a multiplier effect, and government investment can drive larger private investment, achieving the effect of "lifting a thousand pounds with just four ounces."

3 Special Bonds: Expand the scope, strengthen the mechanism, and strictly manage, allowing for the first time to be used for the acquisition of idle land and existing houses.

This year, the issuance of special bonds is not small, but the issuance rhythm is slow, mainly due to limited scope, incomplete mechanisms, and poor management. In 2024, 3.9 trillion yuan of additional special bonds are arranged, which is the largest scale in history. However, the issuance progress in the first seven months is slow, with a progress of only about 45.5%, lower than the average level of the past five years. First, special bonds have certain requirements for the return on investment of underlying projects, and the return on investment of many new infrastructure projects cannot be guaranteed, leading to a lack of projects; second, some projects require local matching funds, and local governments lack matching capabilities in the context of tight fiscal funds; third, the project management system is not sound, such as multi-head supervision, projects are easy to stagnate when encountering blockages, and funds that have arrived are idling.

In response to the above problems, the Ministry of Finance at this meeting clearly expanded the scope and explicitly proposed "expanding the use of special bonds," which will be conducive to the implementation of special bonds and their transformation into physical investment.

"Use special bonds to support the acquisition of land reserves and existing commercial housing for use as affordable housing; reasonably support forward-looking and strategic emerging industry infrastructure, and promote the accelerated development of new quality productive forces."

It is the first time that special bonds can be used to acquire land reserves. From January to August 2024, the national land purchase fee accumulated to 2.64 trillion yuan. The volume of 2.3 trillion yuan of local special bonds available in the last three months is of great significance to the land transaction market. It can not only enhance the control ability of land supply but also significantly alleviate the liquidity and debt pressure of local governments and real estate companies.

The Ministry of Finance proposed, "We will improve the special bond project asset ledger, ensure the balance of government liabilities and project assets, deeply explore the early repayment of special bonds, and study the establishment of a debt repayment reserve fund system." The key is to open up a "green channel" for under-construction projects, promote the effective connection between project planning and reserve construction, and accelerate the formation of physical work volume. First, improve the full life cycle management of special bonds "borrowing, using, managing, and repaying," and implement the responsibilities of project authorities and units. Second, improve the special bond project asset ledger, classify and manage project assets, and ensure the balance of government liabilities and project assets. Third, explore the early repayment of special bonds, study the establishment of a debt repayment reserve fund system, and ensure the source of special bond repayment.4 Real Estate: Accelerate land reserve, optimize taxes and fees, and use multiple tools in conjunction to promote market stabilization and recovery,

The Ministry of Finance mentioned, "By using local government special bonds, special funds, tax policies, and other tools in conjunction, support and promote the real estate market to stabilize and recover."

This fiscal policy addresses both the supply and demand sides, and further efforts are expected in the future.

Special bonds for purchasing idle land and existing housing optimize the supply side, and are expected to accelerate the intensity and speed of land reserve. The purchase of land reserves through special bonds can improve their use efficiency, reasonably control the supply of land, and maintain the stability of the real estate market. Using special bonds to purchase existing housing for affordable housing can not only provide liquidity support for the delivery of housing but also increase the housing stock available for government social security; at the same time, it reduces new construction and optimizes the existing stock, encouraging local governments and market entities to digest more existing commercial housing resources and stabilize housing prices.

Optimizing real estate tax policies is beneficial for reducing taxes and fees, and further releasing housing demand. The meeting mentioned, "Timely optimization and improvement of relevant tax policies, and the study and cancellation of value-added tax policies that connect the standards of ordinary and non-ordinary residential housing are being accelerated." Currently, there are various tax differences between ordinary and non-ordinary residential housing, such as business tax, personal income tax, deed tax, etc. If adjustments are made in this area to reduce the various transaction costs of non-ordinary residential housing, it may release some improvement housing demand in the market and support the real estate market.

Vice Premier He Lifeng pointed out in recent research, "The real estate market is a weathervane for the current macro economy. Doing a good job in real estate is crucial for promoting the continuous recovery and improvement of the economy and safeguarding the immediate interests of the people. It is necessary to truly raise the political position and go all out to ensure the delivery of housing and stabilize the housing market."

The recent policy to save the housing market is unprecedented, seizing the window period to promote the stabilization and recovery of real estate. During the National Day period, the subscription of new houses warmed up, and the transaction of second-hand houses improved significantly, and the policy effect began to show. On October 12, several banks officially announced that from October 25, the existing housing loan interest rates will be reduced in batches to LPR-30BP, alleviating the pressure of residents' housing loans.

It is suggested to establish a large housing bank with a scale of more than 5 trillion yuan to purchase and store, with low interest rates, long terms, large scale, and fair distribution. Purchasing and storing existing commercial housing for affordable housing can achieve multiple goals, alleviate local financial pressure, unblock developers' cash flow, avoid residents' unfinished buildings, and provide affordable housing for the public.

5 People's Livelihood: Increase spending in the fields of people's livelihood and population

(Note: The translation is provided for informational purposes only, and the actual content may vary based on the context and specific details of the policies mentioned.)Enhance the economic security and consumption potential of specific groups. The Ministry of Finance's press conference proposed to "increase support and protection for key groups, and a one-time living subsidy has been issued to the needy before the National Day. Next, efforts will be intensified to reward and assist students, enhancing overall consumption capacity."

In 2024, the central finance has arranged for more than 10 trillion yuan in transfer payments to localities, and allocated 66.7 billion yuan in employment subsidies. Next, investments will be increased in key areas such as education, healthcare, elderly care, and social security.

Pay close attention to population issues. The Ministry of Finance proposed to "adapt to the changing situation of China's population development and the multi-level and diverse needs of the people, further increase spending in related areas, and better benefit people's livelihoods." Currently, China faces a severe aging and low birth rate, on one hand, elderly care industry facilities are urgently needed to be strengthened, and on the other hand, birth subsidies need to be increased to promote the recovery of birth rates, reduce the cost of raising children, and it is expected that spending in related areas will be increased subsequently.

Issue special government bonds to support state-owned large commercial banks to replenish capital.

The Ministry of Finance mentioned that "special government bonds will be issued to support state-owned large commercial banks in replenishing their core tier-one capital." At the same time, the Ministry of Finance fulfills the responsibilities of the state-owned financial capital contributor, which includes establishing a dynamic adjustment mechanism for the capital replenishment of state-owned financial institutions. This policy is also the specific implementation of the state's plan to increase core tier-one capital for six large commercial banks announced at the press conference on September 24.

Currently, the operations of the six state-owned large commercial banks are generally stable, but the net interest margin has been declining for a long time, and loan growth is faster than the speed of capital replenishment. As of the end of June 2024, the average core tier-one capital adequacy ratio was 12.3%, exceeding the 8.5% requirement of China's commercial bank management methods. However, it is still necessary to replenish capital. As of the end of June, the net interest margin of the state-owned large commercial banks has declined for 11 consecutive quarters, falling to 1.46%, the lowest level in history. The decline in net interest margin, profitability difficulties, will restrict the bank's credit generation ability. In order to better provide supporting funds for fiscal efforts, it is necessary to replenish capital and further increase the capital adequacy ratio.

Issuing special government bonds and other channels to raise funds to increase capital for the six major banks will help alleviate the pressure of net interest margins and release credit space. Historically, there have been three rounds of capital injections into state-owned large banks: in 1998, the Ministry of Finance issued special government bonds to inject 270 billion yuan, from 2003 to 2008, the Ministry of Finance injected 79 billion US dollars through the Central Huijin Investment Company with foreign exchange reserves, and after 2010, banks themselves injected capital through IPOs, rights issues, private placements, and other methods. The financing cost of issuing special government bonds is controllable, and the scale is considerable, which is expected to alleviate the funding pressure of large state-owned banks, enhance the stability of bank operations, and credit distribution capacity.

7 Strong determination and signal: The "declaration effect" of fiscal and monetary policies is obvious, opening the prelude to large-scale economic stimulation and boosting market confidence.

In addition to the actual investment of fiscal and monetary policies, the "declaration effect" is very important, conveying a strong determination and signal, similar to the central bank's press conference on September 24.From the highest-level meetings to the密集 convening of press conferences by key economic departments, a package of incremental policies has been announced with great determination and a clear "declaratory effect," marking the beginning of a large-scale economic stimulus and a boost to market confidence.

On September 24th, the State Council's Information Office held a press conference where the "one bank, one bureau, one commission" introduced a comprehensive policy package for total volume, real estate, and capital markets. Monetary policy focused on major moves with significant cuts in reserve requirements and interest rates, strongly supporting the capital market, responding to the situation and public calls, reducing existing mortgage interest rates, and making every effort to grasp the economy.

On September 26th, the Central Political Bureau held a meeting. A large-scale economic stimulus policy is imminent, with an unprecedented intensity in recent years. This highest-level meeting conveyed eight major signals: First, the overall tone is very positive, emphasizing increased effort and quantity; second, fiscal and monetary policies emphasize increased intensity; third, real estate emphasizes promoting price stability; fourth, vigorously boosting the capital market; fifth, adjusting consumption structure, promoting investment attraction; sixth, introducing policies to promote childbirth and improve the elderly care industry; seventh, helping private enterprises through difficult times; eighth, ensuring people's livelihoods, prioritizing employment, and protecting the employment of key groups such as college students.

On October 8th, the National Development and Reform Commission proposed five major tasks for the "package of incremental policies" in a press conference, the third of which is: in response to the current difficulties in production and operation of some enterprises, to increase the intensity of enterprise assistance and help enterprises through difficulties. Further standardize the administrative law enforcement behavior of administrative law enforcement units involving enterprises, adopt more inclusive and prudent supervision and flexible law enforcement methods, and prohibit illegal cross-regional law enforcement and profit-driven law enforcement, as well as arbitrary fines, inspections, and seizures. Timely reminders should be given to places with abnormal growth in confiscated income, and supervision should be carried out when necessary. Accelerate the legislative process of the Private Economy Promotion Law to create a good environment for the development of the non-public sector economy.

On the morning of October 8th, the State Council conducted the tenth thematic study with the theme of "enhancing the consistency of macro policy orientation and strengthening policy synergy to improve implementation effects." Premier Li Qiang pointed out the need to strengthen policy target synergy, to set goals based on the overall needs of economic and social development, and to consciously obey and serve the overall situation. Especially under the pressure of economic downturn, all parties should actively introduce policies conducive to stable growth and expectations, and be cautious about introducing policies with contraction and suppression effects. Strengthen policy measure synergy, focus on system integration and mutual supplementation. The implementation of policies should grasp the timing, intensity, and rhythm. Vigorously standardize enterprise-related law enforcement and regulatory behaviors, and reduce discretionary space. Further improve policy evaluation and assessment.

With the introduction of large-scale economic stimulus policies, there is an expectation for the Chinese economy to bottom out and recover, real estate prices to stabilize, the stock market to prosper, global funds to flow into RMB assets, and to boost morale in one go.

8 Keep a positive mindset and persist in doing the right things for the long term, and heaven will favor us.

Recent views: On August 16th, it was clearly proposed that "it is time to launch a new round of economic stimulus"; on September 18th, it was judged that "the current time is a key window for launching large-scale economic stimulus and boosting market confidence"; on September 24th, the central bank held a press conference, and the bull market started, and on that day, the "prelude to the large-scale economic stimulus plan" was announced. Speaking up and boosting morale at the lowest point of the market, making predictions.

Policies previously advocated, such as interest rate cuts, large-scale local debt, reduction of existing mortgage interest rates, relaxation of real estate purchase restrictions, housing bank storage, consumer subsidies, boosting the capital market, clearing contractionary policies and non-tax revenues, etc., have been verified. Refer to the September 18th "Thoughts on Objectively Understanding the Current Economic Situation and Boosting Market Confidence": "With the obvious deflation of the real estate bubble, a significant decrease in financial leverage, and the Federal Reserve starting the interest rate cut cycle inflection point, etc., it has provided favorable conditions for the adjustment of fiscal and monetary policies. The current time is a key window for launching large-scale economic stimulus and boosting market confidence measures."

Focused on macro research for more than 20 years, with more than ten years of practical investment experience. Ten years ago, in 2014, it was predicted that "5000 points is not a dream," and it also experienced public opinion pressure, but in 2015, when the market was about to reach 5000 points, I warned "the altitude is high, walk slowly." Ten years later, this time, although the overall direction is correct, it has once again experienced public opinion pressure. But it doesn't matter, it's normal for the market to have different views, discuss rationally, and be tolerant.In addition to enhancing professional cognition, one must never forget the innocence and sincerity of a childlike heart. Love your country and this land, and do what is useful for social progress within your capabilities. No one can get rich by betting against their own motherland. Keep a righteous heart and mind, persist in doing the right things for the long term, and the heavens will favor us.

Finally, with the introduction of large-scale favorable policies, I hope for the prosperity and development of China's economy, and for the stock market to experience a sustained and gradual bull market. Macroeconomically, it's about data; microeconomically, it's about the joys and sorrows of countless families. Especially during my recent visits to local areas and enterprises, I was deeply moved. It has been a very difficult time for everyone, and we desperately need something inspiring to clear away the gloom. I hope the Chinese economy will continue to improve! Keep going!