China Rolls Out Fiscal Package as Property Stabilization Takes Priority
Chinese authorities announced a fiscal package worth roughly 3% of GDP, with the majority directed at completing unfinished housing and stabilizing local government finances.
China's Ministry of Finance announced a package of measures on Tuesday worth an estimated 3% of GDP, with the bulk directed at completing unfinished residential construction and refinancing local government financing vehicle debt.
The package includes 1.5 trillion yuan of special-purpose bonds to acquire unsold housing inventory, 800 billion yuan for construction completion guarantees, and 4 trillion yuan of debt swaps for LGFV obligations. Total direct fiscal spending is smaller than markets had hoped.
"The signal is stabilization, not stimulus," said Li Wei, chief China economist at Pacific Bridge Research. "Beijing wants to put a floor under property prices and complete what has already been sold. It is not trying to reignite the old growth model."
Property remains the drag. New home prices in the seventy cities tracked by the National Bureau of Statistics fell 5.8% year-over-year in September, the smallest decline in eighteen months but still contractionary. Fixed asset investment in real estate is down 9% year-to-date.
Consumption has been more resilient. Retail sales grew 4.2% year-over-year in September, with services consumption particularly strong. Trade-in programs for appliances and vehicles have added roughly 40 basis points to headline growth.
Exports continue to surprise on the upside, growing 6.1% year-over-year in September despite tariff headwinds. The trade surplus is running at a record 6.8% of GDP, which is creating political friction with major trading partners.
More from CapitalWire
Fed Set for Hawkish Hold on Oct 28 as Markets Price a December Hike
The FOMC is expected to hold at 3.75%-4.00% on October 28, but futures put roughly 72%-80% odds on a further hike in December as CPI runs at 3.7% and the oil shock feeds through.
Tightening Sync: ECB and BoJ Join Fed in Hiking as Policy Divergence Widens
The ECB lifted its deposit rate to 2.5% in September and the BoJ is expected to hike in December, while Brazil and Canada ease — a divergence that is resetting currency and bond markets.
France's Borrowing Costs Jump as Budget Crisis Revives Eurozone Sovereign Risk
French 10-year yields rose 10bp to 4.89% with the spread over Germany near a 14-year high, as protests and a record $4 trillion debt pile put European sovereign risk back in focus.
Reader discussion