Banking group Nomura says it “firmly expects” the Chinese authorities to present a “fiscal stimulus package,” as the nation’s Ministry of Finance will hold a briefing on fiscal policy on October 12. Investors have been looking for additional measures that would stimulate the world’s number two economy.
On Tuesday, China’s National Development and Reform Commission (NDRC) held a press conference that some commentators had anticipated would mention economic policy measures specifically relevant to Macau and Hong Kong. Nothing of that nature was mentioned.
Hong Kong stocks linked to Macau casino operators took a dive on Tuesday following the NDRC conference, while Hong Kong’s Hang Seng Index closed 9.4 percent lower, “the largest fall since 2008”.
The shares of Macau casino firm had risen a fortnight ago after the Chinese government revealed stimulus measures designed to jolt the country’s economy.
While the NDRC’s briefing “seemingly disappointed markets,” noted Nomura, the investment community “should know that it is not within the NDRC’s mandate to make fiscal stimulus announcements”.
“The corrections in stock markets may not be a bad thing as, in our view, preventing a stock mania and crash is a precondition to successfully jump-start China’s economy,” wrote analysts Ting Lu, Jing Wang, and Harrington Zhang.
According to the banking group, the size of the overall stimulus package that might be announced on October 12 “could be capped at 3 percent of gross domestic product per year, including funding from the People’s Bank of China and policy banks”.
The Nomura team added: “Much of this incoming fiscal stimulus will likely be used solely to fill the fiscal gap faced by local governments. We believe the content of stimulus matters more than its size, as Beijing will have to clean up the mess created by the housing crisis and revamp its fiscal system, as local governments might no longer be able to collect massive revenue from land sales.”
According to the Nomura team, the timing of the Ministry of Finance’s press conference suggests the ministry “might not announce the exact
numbers for extra CGB [central government bond] quota, as it may take place before the bimonthly meeting of the Standing Committee of the National People’s Congress (NPC), China’s top legislature”.
The analysts stated: “We expect the Ministry of Finance, at its 12 October press conference, to discuss additional funding via the issuance of CGBs, although the exact numbers – potentially CNY2.0 trillion (US$283.0 billion) – will likely be announced by the NPC Standing Committee later this month.”
They added: “The actual stimulus would likely be larger than that, as Beijing may tap funding from the People’s Bank of China and the three policy banks to address the debt overhang, especially as it relates to the delayed delivery of pre-sold homes in the property sector. We estimated the funding gap to be above CNY3.0 trillion.”
Bill Hornbuckle, chief executive and president of casino group MGM Resorts International, the parent of Macau operator MGM China Holdings Ltd, said this week that China economic stimulus policy was “relevant” to Macau, but added that the city was still “unique” in terms of its appeal to Chinese customers.
