The Chinese government decided to allow special purpose bonds to be used for housing purchases. Chinese Finance Minister Lan signaled that there is room to increase borrowing and the budget deficit.
Vice Finance Minister Wang Dongwei stated that the government is working to expand the use of local government special bond proceeds. On housing, Lan said the ministry is working on measures to optimize the tax policy. The implementation of this policy means that many home buyers in major cities will be subject to additional taxes during transactions.
Local governments will be allowed to use the proceeds of special bonds to buy unsold housing and convert it into subsidized housing, as well as reclaim idle land. “We are now accelerating the use of additional treasury bonds, and ultra-long term special treasury bonds will also be issued for use. In the next three months, a total of 2.3 trillion yuan (about $330 billion) of special purpose bonds may be issued for use in various places.”
Vice Minister Wang added that the ministry will complete its target of issuing 1 trillion yuan of special government bonds this year on time. However, this came as a disappointment to investors who had expected the officials to clarify the value of additional special government bonds at the press conference. In a Bloomberg survey, 15 institutions expected 2 trillion yuan of additional stimulus.
Briefing on steps to help large state-owned banks replenish their capital, Vice Finance Minister Liao said the ministry is waiting for banks to submit their specific plans and work is progressing. He also added that listed banks would disclose relevant information in accordance with the rules.
Lan also briefed on the planned reforms to China's financial and tax system, which was previously highlighted as a priority at the Third Plenum of the Communist Party. Lan stated that the government will implement important reform measures in the next one to two years, including improvements to the budget system and the system of central government transfers to local governments.
“The most important signal for the future is the increased likelihood that local governments will offer concrete financing solutions to help them solve their debt problems,” Bloomberg Economics said in its assessment of the decisions. With no urgent new money in sight, central policymakers will likely focus on supporting local governments in meeting their budgeted spending and using available resources to stabilize the housing market,” Bloomberg Economics said.
Fiscal support has been the biggest missing piece since Beijing began implementing a comprehensive stimulus package in late September, ranging from central bank-led interest rate cuts to help for property and stock markets. Wider public spending is critical to reviving the world's second-largest economy, which faces the risk of deflation and is in danger of falling short of the government's target of nearly 5% growth by 2024.
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