Disappointing Chinese Stimulus... Attention on Next Month's Central Economic Work Conference for 'Next Year's Economic Policy Decisions'

Expectations for Confirmation of Government Bond Issuance at December Central Economic Work Conference

China announced a large-scale economic stimulus package, but it has been met with disappointment. As a result, attention is turning to the December Central Economic Work Conference, which will determine next year's economic policy direction.

China Announces Economic Stimulus Package. Yonhap News

On the 8th, after the closing of the Standing Committee meeting of the National People's Congress (NPC), China unveiled a plan to inject 10 trillion yuan (approximately 1,937 trillion won) over five years to address the chronic local government debt problem. The plan includes increasing the local government debt limit by 6 trillion yuan (about 1,162 trillion won) and allocating 800 billion yuan (about 155 trillion won) annually from local government special bonds for debt resolution over five years starting this year (totaling 4 trillion yuan).

However, the timing and scale of issuing special national bonds and local special bonds, which had raised expectations, were excluded from the stimulus package. Previously, there had been expectations that China would issue special national bonds to recapitalize state-owned banks involved in government stimulus policies and allow local governments to issue special bonds to purchase idle land and unsold housing.

One analysis suggests that the reason for China's delay in announcement is the recent improvement in Chinese economic indicators. Ding Shuang, Chief China Economist at Standard Chartered Bank, told the Hong Kong South China Morning Post (SCMP), "Recently, Chinese senior officials have become more confident in achieving the 5% growth target," adding, "As economic growth risks decrease, Chinese policymakers appear to be reserving firepower for next year."

In October, China's Purchasing Managers' Index (PMI) entered expansion territory, and exports increased by 12.7% compared to the same period last year, marking the highest level in 19 months.

Accordingly, there is analysis that the issuance of government bonds and other measures may be finalized at the December Central Economic Work Conference, which will decide next year's economic policy direction including the economic growth rate, and approved at the NPC in March next year.

Ho Min Lee, Chief Macro Strategist at Swiss private bank Lombard Odier, told Bloomberg News, "It appears that Chinese authorities are postponing some stimulus decisions to the December policy decision meetings, including the Central Economic Work Conference."