Zhitong Finance APP has learned that CITIC Securities has released a research report stating that on October 12th, the State Council Information Office held a press conference where Minister of Finance Lan Fu'an and others introduced the situation regarding "increasing the counter-cyclical adjustment of fiscal policy and promoting high-quality economic development." The conference conveyed a positive signal of fiscal policy, with short-term incremental policies clearly aimed at resolving risks and increasing the enthusiasm of various market entities. In the long term, it was clearly stated that there is still a large space for central finance to increase debt and deficit.

The attitude of fiscal policy towards the "three guarantees" (guaranteeing basic livelihoods, guaranteeing basic public services, and guaranteeing basic operational funding for primary-level governments) has been further clarified, and the tight pressure on grassroots expenditures is expected to be appropriately alleviated in the future. It is expected that the economy and the capital market will stabilize and rebound together under the support of specific policies and optimistic expectations.

Specifically, the following important deployments are worth noting:

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1) Debt resolution is re-emphasized, with plans to increase the debt limit by a large scale in one go to replace the existing implicit debt of local governments.

2) It is clearly stated that support will be given to state-owned banks to replenish Tier 1 capital, enhancing the risk resistance of state-owned banks.

3) Special bonds will be introduced to reclaim idle land, reserves, and related tax policies, reflecting the determination of fiscal policy to stabilize real estate.

4) Consolidate grassroots "three guarantees" expenditures, and further strengthen student aid policies.

5) Benefiting people's livelihoods and promoting consumption will be the focus of subsequent fiscal policies.

6) It is clearly stated that special bonds can be used to purchase existing housing for affordable housing and to resolve existing government investment project debt.

The conference conveyed a positive signal of fiscal policy, with short-term incremental policies clearly aimed at resolving risks and increasing the enthusiasm of various market entities. In the long term, it was clearly stated that there is still a large space for central finance to increase debt and deficit.

After the National Day holiday, market investors are highly concerned about the timing and effectiveness of fiscal policies for the rest of the year and next year. At this conference, Minister of Finance Lan Fu'an and three deputy ministers effectively responded to the market's concerns with specific and practical risk resolution policies and positive expectations management, effectively boosting confidence in the capital market. On the one hand, Minister Lan provided a detailed explanation of policies that have entered the decision-making process, such as resolving local government debt, replenishing bank Tier 1 core capital, supporting the stabilization and rebound of real estate, and increasing the protection of key groups, by resolving risks to free up more resources for market entities to develop the economy. On the other hand, Minister Lan also clearly stated that other policy tools are being studied, emphasizing that there is still a large space for central finance to increase debt and deficit.

The timely rain of debt policy, plans to increase the debt limit by a large scale in one go to replace the existing implicit debt of local governments.

Since the launch of the debt resolution package, the Ministry of Finance has arranged more than 2.2 trillion yuan of local government bond quotas to support localities, especially high-risk areas, to resolve existing debt risks and clear overdue corporate accounts. Since 2024, after going through relevant procedures, the Ministry of Finance has arranged 1.2 trillion yuan of debt limits to support local debt resolution. Looking ahead, in addition to continuing to arrange a certain scale of bonds in the new special bond quota every year to support the resolution of existing government investment project debt, plans are being made to increase the debt limit by a large scale in one go to replace the existing implicit debt of local governments, further strengthening debt resolution. This move will greatly reduce the debt pressure of local governments, free up more resources for economic development, boost the confidence of business entities, and consolidate grassroots "three guarantees."

In recent years, as state-owned banks have increased their support for the real economy, the yield on the asset side and the cost rate on the liability side have declined asymmetrically, narrowing the net interest margin space, and the ability to replenish capital from internal sources has decreased. There is an urgent need to replenish bank capital through external channels.

Especially for the four major banks, although the core Tier 1 capital adequacy ratio still has a large space from the regulatory red line, there is still a large funding gap from the 2025 TALC standard. Due to the quota restrictions on external channels such as perpetual bonds to replenish capital, state-owned banks are difficult to issue a large scale of perpetual bonds to replenish capital in the short term. The Ministry of Finance has clearly proposed to support state-owned banks to replenish Tier 1 capital, which can greatly enhance the risk resistance of state-owned banks, alleviate the pressure of capital replenishment, and improve the ability of state-owned banks to support and serve the real economy.

Promoting the stabilization and rebound of the real estate market is one of the four major incremental measures mentioned by the Ministry of Finance, reflecting the determination of the finance to strengthen coordination and cooperation in stabilizing real estate, involving special bonds to reclaim idle land, reserves, and related tax policies, etc.

For specific incremental policies, the Ministry of Finance has clearly proposed three measures: First, support local governments to use special bonds to reclaim eligible idle existing land. In fact, as early as May 17th this year, at the State Council Information Office's regular policy briefing, Liu Guohong, Deputy Minister of Natural Resources, stated that policies were being prepared to clearly support local governments to reclaim idle land that enterprises are unable to continue developing at a reasonable price, or to purchase land that has not been sold in judicial and bankruptcy auctions. CITIC Securities believes that this is in line with the "strict control of increments" idea proposed by the Political Bureau in September, which can both reduce idle land and help alleviate the liquidity and debt pressure of local governments and real estate companies. Second, support the purchase of existing housing and increase the supply of affordable housing. The specific sources of funds include special bonds and affordable housing project subsidies. At present, the main source of funds for affordable housing reserves is 300 billion yuan of special loan funds, and this move is expected to effectively alleviate the pressure of local government reserve funds, but the actual effect may still need to be observed. In 2024, the total amount of central finance urban affordable housing project subsidy funds should be allocated is 70.78 billion yuan, and the new special bond quota is 3.9 trillion yuan. Third, promptly optimize and improve related tax policies, such as the value-added tax and land value-added tax policies that are being studied to clarify the connection with the standards of ordinary and non-ordinary residences. This move may help increase the activity of personal housing transactions, increase the willingness to improve housing, and alleviate the capital pressure of developers.The meeting called for further consolidation of grassroots "three guarantees" expenditures, increased support and protection for key groups, and intensified financial aid policies for students.

Affected by the slowdown in fiscal revenue growth and the decline in land transfer income, the pressure to ensure basic livelihoods, wages, and operations, known as the "three guarantees," has increased in some local areas. The Ministry of Finance at this meeting clearly proposed three policy measures: First, by increasing transfer payments, swapping local debt, expanding local tax sources, and appropriately expanding local tax management authority, comprehensively enhance local financial strength. Second, actively build a long-term mechanism to stabilize "three guarantees" expenditures. By压实 local expenditure responsibilities and strengthening the central monitoring of local treasury funds and "three guarantees" funds throughout the entire process, promptly detect risks. Third, further increase support and protection for key groups, introduce measures such as doubling the number of national scholarship rewards, and increase the standards of rewards and financial aid, with continuous strengthening of fiscal support. Overall, CITIC Securities believes that the fiscal attitude towards the bottom line of "three guarantees" has become clearer, and the tight pressure on grassroots expenditures is expected to be appropriately relieved later.

Benefiting people's livelihood and promoting consumption is one of the key focuses of subsequent fiscal policies, with a focus on increasing support and protection for key groups. In addition, the logic of bottoming out the three guarantees and intensifying debt resolution also has a spillover effect on promoting consumption.

Minister Lan Fu'an proposed at the press conference to increase support and protection for key groups. A one-time living subsidy has been issued to people in difficulty before the National Day. The next step will also increase the intensity of rewards and assistance for student groups to improve overall consumption capacity. Given that both the July and September Central Political Bureau meetings emphasized the goal of "benefiting people's livelihood and promoting consumption," it is expected that other policies supporting key groups may also be studied and introduced successively. In addition, bottoming out the three guarantees and intensifying debt resolution also help to ensure the full and timely payment of grassroots wages, which logically also has a certain spillover effect on promoting consumption.

The use and management methods of special bonds have ushered in reforms, mainly in the expansion of uses and project asset inventory management, which helps to alleviate the cash flow pressure of local governments, some real estate companies, and construction enterprises, and promote the balance of government debt and project assets.

The press conference clarified that the use of special bonds has expanded, mainly可用于 acquiring existing housing for affordable housing, and resolving the debt of existing government investment projects. The former helps to promote the stabilization of the real estate market and reduce the cash flow pressure of real estate companies, while the latter helps to alleviate the problem of insufficient funds for the continuation or settlement of old projects. The press conference also proposed to improve the full life cycle management of "borrowing, using, and repaying" special bonds to ensure the balance of government debt and project assets, explore the early repayment of special bonds, and improve the efficiency of project and debt management.