As the stock market adjusts, the much-anticipated fiscal policy intensification is "on the brink".

On October 9th, the State Council's Press Office announced that a press conference would be held on the 12th, inviting the Minister of Finance, Lan Fuan, to introduce the situation related to "increasing the counter-cyclical adjustment intensity of fiscal policy and promoting high-quality economic development", and to answer questions from journalists.

Following the implementation of a series of financial incremental policies such as reserve requirement ratio cuts and interest rate reductions, which have driven the stock market to rise, whether there will be fiscal incremental policies in the fourth quarter, especially whether the government will increase borrowing to expand spending, has become a focus of attention. Coincidentally, on the same day, a local government stated that "the country is about to introduce a larger scale of ultra-long-term special treasury bonds", and the People's Bank of China and the Ministry of Finance held their first formal joint working group meeting to support the gradual increase of treasury bond buying and selling in the central bank's open market operations, further raising market expectations for fiscal policy reinforcement.

Several experts told Yicai that the market is very much looking forward to the introduction of fiscal incremental policies, with some even hoping for a super-large-scale stimulus policy similar to the 4 trillion yuan in 2008. However, expectations should not be too high. The current priority is to make good use of existing proactive fiscal policies, accelerate the progress of fiscal spending, and consider moderately increasing the issuance of treasury bonds or special treasury bonds to ensure necessary fiscal spending. However, the issuance of additional treasury bonds and special treasury bonds generally needs to wait until late October to see if there are relevant deployments at the Standing Committee of the National People's Congress meeting.

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Will there be another ultra-large-scale special treasury bond of over one trillion yuan in the fourth quarter?

This year, the economic downturn pressure has increased, and some new situations and problems have emerged in the economic operation. In response, the Political Bureau of the CPC Central Committee introduced incremental policies at the end of September when deploying the next economic work.

Financial incremental policies such as reserve requirement ratio cuts, interest rate reductions, and the reduction of existing mortgage loan interest rates have been gradually implemented, effectively boosting market confidence, and the stock market has been rising all the way before the decline on the 9th. This has also made fiscal incremental policies more attention-grabbing, and the Ministry of Finance's press conference on the 12th has become an important observation window.

Hu Hengsong, Deputy General Manager of Cinda Securities, told Yicai that from the current situation, the market is particularly concerned about whether there will be incremental fiscal policies to promote a further strong economic recovery; whether there will be a super-large-scale stimulus policy similar to 2008; and whether there will be additional special treasury bonds or local government bond quotas to fill the local financial gap.

On October 8th, the Sichuan Provincial Government held an expanded meeting of the Party Group, where it was mentioned that for policies such as the country's upcoming larger scale of ultra-long-term special treasury bonds and the advance issuance of next year's central budget investment plan, it is necessary to strengthen project packaging and reserve, deepen and solidify preliminary work, and strive for more shares and greater support.

This year, the country has determined to issue 1 trillion yuan in ultra-long-term special treasury bonds, and the actual bond issuance scale has exceeded 700 billion yuan, with plans to complete this year's bond issuance task in November. The above-mentioned local statement about the country's upcoming larger scale of ultra-long-term special treasury bonds has sparked market speculation, and whether there will be an additional issuance of over one trillion yuan in ultra-long-term special treasury bonds in the fourth quarter?Orient Jincheng's Chief Macro Analyst, Wang Qing, explained that this statement should primarily be in response to the National Development and Reform Commission's (NDRC) statement on the 8th that "next year will continue to issue ultra-long-term special government bonds and optimize their allocation to strengthen support for 'two heavy' construction," rather than expressing that there will be an addition of more than 1 trillion yuan in special government bonds in the fourth quarter of 2024. Of course, whether there will be an additional issuance of special government bonds in the fourth quarter still remains to be observed, and this possibility cannot be ruled out.

Professor Wen Laicheng from Central University of Finance and Economics told Yicai that since the NDRC will advance the issuance of next year's 100 billion yuan central budget investment plan and 100 billion yuan "two heavy" construction project list within the year, to support localities in accelerating the preliminary work and starting the implementation, localities will actively deploy and prepare for the preliminary work of projects to strive for a larger special government bond quota next year in order to accelerate local economic and social development.

Hu Hengsong stated that, judging from the aforementioned statement by Sichuan Province, the country may introduce a larger scale of ultra-long-term special government bonds to increase the sources of funds for medium and long-term economic construction, providing long-term and stable financial support for major projects. However, the specific issuance scale and plan need to be based on the relevant notices from the Ministry of Finance.

"The issuance of additional special government bonds has a strict approval process, requiring the State Council to propose a review request to the Standing Committee of the National People's Congress (NPC), and after it is reviewed and passed by the NPC Standing Committee, the Ministry of Finance is responsible for the specific implementation. Whether a larger scale of special government bonds will be issued depends on the economic situation and fiscal needs, and it is currently impossible to judge," Hu Hengsong said.

Wen Laicheng believes that if the downward pressure on the economy further increases, the possibility of issuing additional special government bonds in the fourth quarter will increase.

On October 9th, the People's Bank of China's official website released a message that, in order to implement the spirit of the Third Plenary Session of the 20th Central Committee of the Communist Party of China and to fulfill the requirement of the Central Financial Work Conference to "enrich the monetary policy toolkit and gradually increase the buying and selling of government bonds in the central bank's open market operations," the People's Bank of China and the Ministry of Finance established a joint working group and held the first official meeting of the working group recently. Both parties unanimously believe that the central bank's buying and selling of government bonds is an important means of enriching the monetary policy toolkit and strengthening liquidity management. The next step is to coordinate development and security, continue to strengthen policy collaboration, continuously optimize relevant institutional arrangements, maintain the stable development of the bond market in a standardized manner, and provide a suitable market environment for the central bank's government bond buying and selling operations.

When the market expects that fiscal policy will increase the scale of government bond issuance, the establishment of the aforementioned working group by the central bank and the Ministry of Finance has also attracted attention.

Wang Qing stated that this should belong to a normalized work arrangement and may not be related to the subsequent increase in the issuance of government bonds or special government bonds. The arrangement for issuance belongs to the primary market category, while the joint working group is aimed at the central bank's buying and selling of government bonds in the secondary market. Moreover, the central bank believes that the current medium and long-term government bond yields are too low and need to be adjusted, so there is no need to guide the secondary market's medium and long-term government bond yields down to reduce the issuance cost of government bonds in the primary market.

Hu Hengsong believes that the establishment of the aforementioned joint working group indicates that the central bank and the Ministry of Finance will cooperate more closely, using monetary policy tools to regulate market liquidity and also provide corresponding support for fiscal policy. Under the current economic situation, the central bank and the Ministry of Finance may support the implementation of incremental policies by increasing the issuance of government bonds, such as supporting localities in carrying out debt swaps, resolving debt risks, and increasing the positive promotion of economic development, etc.

Make full use of existing policies, and expectations for incremental increases should not be too high.Observing the fiscal policy efforts in the fourth quarter, it is still necessary to return to the aforementioned deployments of the Central Political Bureau meeting.

The Central Political Bureau meeting emphasized the need to increase the counter-cyclical adjustment intensity of fiscal and monetary policies, ensure necessary fiscal expenditures, and effectively carry out the grassroots "three guarantees" work. It is important to issue and use ultra-long-term special treasury bonds and local government special bonds well, to better leverage the driving effect of government investment.

The Chief Economist for Greater China and North Asia at Standard Chartered Bank, Ding Shuang, stated that China's budget execution progress is often slower than the budget, and it is often found at the end of the year that the deficit is below the budget level, with idle funds not fully utilized. In the first eight months of this year, the progress of broad fiscal expenditures (especially government fund expenditures) was slow. If the expenditure progress is not accelerated, the execution deficit for the whole year may again be significantly lower than the budget. Therefore, the first priority at present is to make good use of the policy space within the budget.

The "State Council Report on the Budget Execution Situation Since the Beginning of the Year," made public in mid-September, prioritizes "improving the effectiveness of fiscal policy" when deploying the next steps of fiscal key work. This includes closely tracking the execution of the budget and the implementation of policies; making good use of various funds such as ultra-long-term special treasury bonds, local government special bonds, and central budgetary investment; actively guiding social capital participation; and focusing on improving the comprehensive benefits of investment.

According to public data, in the first three quarters of this year, 3.9 trillion yuan of local government special bonds have been issued, with about 3.6 trillion yuan issued, and the remaining quota will be mostly completed in October. The 1 trillion yuan ultra-long-term special treasury bonds have issued 752 billion yuan, and the annual issuance task will be completed by mid-November.

To make good use of the special bond funds, Zheng Shanjie, the Director of the National Development and Reform Commission, stated that the progress of issuing and using local government special bonds should be accelerated to support the construction of projects. It is necessary to quickly study the appropriate expansion of the fields, scale, and proportion of special bonds used as capital, and to introduce specific reform measures to reasonably expand the scope of support from local government special bonds as soon as possible.

In addition to making good use of existing proactive fiscal policies and optimizing management, experts are currently universally calling for the introduction of incremental policies to increase government borrowing to expand government expenditures, make up for expenditure shortages, promote demand from contraction to expansion, and promote the resolution of short-term and medium to long-term economic issues. Of course, experts have different views on how much debt scale should be increased in the fourth quarter and where the funds should be directed.

Ding Shuang stated that in response to the financing gap caused by the decline in national taxes this year, it is possible to consider issuing an additional 1 trillion yuan of treasury bonds to make up for it, to ensure necessary fiscal expenditures. Relax the use of bond funds to prevent idle funds. Consider increasing the quota of refinancing bonds by 1 trillion yuan to resolve local debt risks. It is also possible to consider announcing the issuance of a larger scale of ultra-long-term special treasury bonds next year and to advance the quota for next year to achieve the connection between this year and next year. At the same time, the central bank should provide sufficient liquidity, including purchasing treasury bonds in the secondary market, to prevent the crowding out effect of fiscal policy.

Hu Hengsong stated that from the overall fiscal situation, the central fiscal deficit ratio is relatively low, and the borrowing space is relatively abundant. Issuing a larger scale of ultra-long-term special treasury bonds meets the expectations for the introduction of incremental fiscal policies. It is expected that there will be a high probability of introducing incremental special treasury bond issuance in the fourth quarter, and the scale is very likely to exceed 1 trillion yuan based on actual demand.

Some experts also suggest issuing more than 10 trillion yuan in treasury bonds to stimulate the economy. "Some experts discuss issuing 10 trillion, 20 trillion yuan in treasury bonds from a medium to long-term perspective with good intentions, but inadvertently raise market expectations. Current expectation management is a challenge," Ding Shuang said.Wang Qing believes that the Ministry of Finance's press conference should primarily focus on changes in the tone of fiscal policy, as well as the rhythm of fiscal expenditure, bond issuance, and adjustments in the use of funds. As for increasing the issuance of government bonds or special government bonds, it requires approval from the Standing Committee of the National People's Congress (NPC), and it is expected that the Ministry of Finance will not directly announce this at the press conference. For instance, the issuance of an additional 1 trillion yuan in special government bonds in 2023 was announced through the public notice of the NPC Standing Committee meeting on October 24th.