■China Economic Times reporter Liu Hui
The Political Bureau of the CPC Central Committee held a meeting on April 30 and pointed out that it is necessary to make efforts to effectively implement the macroeconomic policies that have been determined, and implement a proactive fiscal policy and a prudent monetary policy. It is necessary to issue and make good use of ultra-long-term special treasury bonds as soon as possible, speed up the issuance and use of special bonds, maintain the necessary intensity of fiscal expenditure, and ensure that the "three guarantees" at the grassroots level are spent on time and in full. It is necessary to flexibly use policy tools such as interest rates and reserve requirement ratios to increase support for the real economy and reduce the cost of comprehensive social financing.
A person interviewed by a reporter from the China Economic Times said that after the deployment of this meeting, it is expected that the issuance of ultra-long-term special bonds will be launched in the second quarter, the use of new special bonds will also be accelerated, and the fiscal rhythm or margin will be accelerated. In terms of monetary policy, there is insufficient need for easing in the second quarter. Some analysts also said that flexible use may still point to RRR and interest rate cuts in the second half of the year.
01
The policy tone of fiscal "proactive" continued
Wen Bin, chief economist of Minsheng Bank, told the China Economic Times that from the perspective of the first quarter, the additional 1 trillion yuan of treasury bonds issued in 2023 is still the protagonist, and all the funds have been issued to the local government by the end of February this year, and it is required to be used up by the end of June, which is also an important support for the better-than-expected infrastructure. After the deployment of the Political Bureau of the Central Committee, it is expected that the issuance of ultra-long-term special treasury bonds will start in the second quarter, and the use of new special bonds will also be accelerated, but the focus may be shifted to the third quarter, forming a situation of rolling succession of funds, avoiding the centralized supply of funds to cause greater pressure on the capital side and pushing up the financing cost of government bonds. The Ministry of Finance previously stated that it would strengthen the overall planning of central and local funds, stock and incremental funds, and form a synergy with ultra-long-term special treasury bond funds to improve the overall efficiency of funds. The meeting also called for "in-depth implementation of the local government debt risk resolution plan to ensure that provinces, cities and counties with high debt risks can truly reduce debts and develop steadily", and that the increase of inventory control and ensure the "three guarantees" at the grassroots level will become the main line of work in the next stage.
Image source/Authorized by Photo.com
Xun Yugen, chief economist of Haitong Securities, said that from the statement of this meeting, the "positive" policy tone of the fiscal continued. The scale of the fiscal deficit this year has increased compared with last year, but the resolution of local debt continues to advance. In the first quarter, the pace of issuance of new local special bonds was slow, and the net financing of urban investment bonds was low.
Li Chao, chief economist of Zheshang Securities, analyzed that since 2024, the issuance of new special bonds has been slow, mainly affected by factors such as financial discipline rectification and project review. The National Development and Reform Commission recently disclosed that it has jointly reviewed 38,000 special bond projects with the Ministry of Finance, and it is expected that the subsequent issuance of special bonds will be significantly accelerated after the project review is completed. In addition, the "Government Work Report" pointed out that starting from this year, it is planned to issue ultra-long-term special treasury bonds for several consecutive years, specifically for the implementation of major national strategies and security capacity building in key areas, and the meeting clearly stated that "it is necessary to issue and use it well as soon as possible", referring to the issuance rhythm of special treasury bonds in 2020 and 2023, it is expected that the ultra-long-term special treasury bonds will start to be issued in the second quarter with a high probability.
According to the analysis of the macro team of Shenwan Hongyuan, the meeting highlighted that "it is necessary to make efforts to effectively implement the macro policies that have been determined". In terms of fiscal policy, we urge fiscal financing to speed up and ensure the intensity of expenditure. On the one hand, the urging of fiscal financing stems from the new requirement of "avoiding tightening before loosening", especially after the overall consumption of services shows the new characteristics of "more prosperous in the peak season and lighter in the off-season". After the rapid improvement in service consumption in the first two months of this year, service consumption in the second quarter may enter a relatively cooling stage, and it is necessary to iron out the economic rhythm between the quarters through the force of fiscal policy. On the other hand, it may be due to the fact that in the relatively low stage of fiscal revenue, "maintaining the necessary intensity of fiscal expenditure" requires more support from fiscal financing. Judging from the statement of this meeting, the follow-up fiscal expenditure may be more positive than that in the first quarter.
02
Monetary policy will focus on "precision and effectiveness"
For monetary policy, Wen Bin said that in the second quarter, the need to ease and increase the weight is insufficient, in addition to the continued recovery of the economy, the room for interest rate cuts is to a certain extent constrained by the narrowing of commercial banks' interest rate spreads and the delay in the timing of U.S. interest rate cuts, but it is not ruled out that the RRR cut will be combined with the issuance of ultra-long-term special treasury bonds. The focus of monetary policy is expected to continue to be on "precision and effectiveness", making good use of the newly established 500 billion yuan of scientific and technological innovation and technological transformation re-loans, and supporting the digital, intelligent and high-end upgrading of small and medium-sized science and technology enterprises and key areas. Give full play to the role of re-lending, re-discounting, and inclusive small and micro loan support tools, and guide financial institutions to increase loans to private and small, medium, and micro enterprises, and reduce financing costs.
Liang Zhonghua, chief macro analyst of Haitong Securities Research Institute, told the China Economic Times that it is expected that in the future, the monetary policy will be stable and loose, and there is still room for adjustment of the medium-term policy interest rate, but considering that the interest rate gap between China and the United States has widened, the exchange rate is also an important variable that needs to be considered, and policy trade-offs are required.
The Politburo meeting also explicitly mentioned interest rates and reserve ratio tools for monetary policy. Li Chao said that there is still room for aggregate easing operations, among which the probability of RRR cuts is relatively large, and the timing may be considered to cooperate with the rhythm of treasury bonds and local government bond issuance, but interest rate cuts (policy interest rates such as reverse repo, MLF interest rates, etc.) need to consider the constraints of the balance of payments. At present, there is still a certain amount of depreciation pressure on the RMB exchange rate, and the mainland's balance of payments still needs to be closely watched. However, from the perspective of reducing the financing cost of the real sector, the LPR has a high probability of continuing to be guided downward, and as a bank quotation, the RRR cut, the reduction of the deposit listing interest rate and other operations can reduce the cost of bank liabilities, and then affect the LPR quotation, the downward trend of the LPR will drive the real interest rate down, and the financing cost of the real sector will decline to improve investment and consumer sentiment. In terms of other monetary policy tools, it is expected that structural policy tools will continue to exert force and play a role in directional guidance, while short-term capital control will remain flexible and appropriate, and will be synchronized with fiscal policy.
Shenwan Hongyuan's macro team said that short-term exchange rate pressure restricts monetary policy to be further loosened, but the flexible use may still point to the RRR and interest rate cuts in the second half of the year, and maintain the judgment of RRR and interest rate cuts in the third quarter. The effect of monetary policy on credit stimulation at the beginning of 2024 is gradually decreasing, and "flexible use" implies more camera choices, which may be due to the high attention of monetary policy to the exchange rate and the current more complex fluctuations of the RMB exchange rate than last year. On the whole, the pattern of monetary policy remaining moderately loose and driving down social financing costs has not changed. Considering the wording of "flexible use", the interest rate and reserve ratio policies mentioned in this meeting may not be completely in line with the second quarter, and the central bank may need to see the latest decisions of the European Central Bank and the Federal Reserve in June before making deployments, maintaining the judgment that the next monetary policy window may remain unchanged in the third quarter, and pay attention to the possibility of LPR reduction in July and August and 25BP RRR cut in September.
Chief Producer丨Wang Hui and Che Haigang
Producer丨Li Piguang, Wang Yu, Liu Weimin
Editor-in-Chief丨Mao Jinghui Editor丨Gu Yun