China: Looking beyond the NPC meetings – Standard Chartered

With 2024 growth risk ebbing, we think the policy focus has shifted to 2025. The Standing Committee of the NPC may approve bank recapitalisation and local debt swap plans, but we see low probability of a budget revision for 2024. Additional fiscal stimulus to counter external risks will likely be planned at the December CEWC, Standard Chartered’s economists Shuang Ding and Hunter Chan notes.

In no hurry to respond to the US election

“China’s policy makers will likely reserve their firepower for next year as growth risks have decreased. The mid-October fiscal package made CNY 1.4tn additional spending possible in Q4, reducing downside risks. The official PMI returned to expansionary territory in October, consistent with the Caixin PMI and our SMEI survey, boding well for an activity rebound in Q4. We now see upside risk to our 2024 growth forecast of 4.8%. Senior government officials have recently become more confident in achieving the growth target of 5%.”

“The Standing Committee (SC) of the National People’s Congress (NPC) will conclude its session on 8 November, immediately after the US presidential election. Many market participants expect the SC to approve additional fiscal stimulus (including revising the 2024 budget), with the size of stimulus dependent on the US election outcome. We expect the SC to approve a CNY 1tn special central government bonds (CGBs) quota to replenish capital at six major banks, and a local special bonds quota of CNY 6-10tn for the debt swap to be used over 3-5 years. We see a below-50% chance of the 2024 CGB quota being increased. The government may wait until the Central Economic Work Conference (CEWC) in December to tackle external risks in a comprehensive way.” 

“If Harris wins the election, we expect China’s narrowly defined official budget deficit to be widened to 3.5% of GDP (CNY 4.8tn) in 2025 from an effective 3.4% (CNY 4.5tn) this year. In case of a Trump win, another CNY 1-2tn of spending (c.1% of GDP) will likely be added to offset a potential increase in US tariffs on imports from China.”