China's Finance Minister Teases Deficit Increase Amid Economic Concerns

China's Finance Minister Lan Fo'an hinted at increasing the deficit during a recent press briefing, suggesting greater fiscal flexibility. He stressed that the opportunity to do so is "quite substantial," but further discussions are ongoing. Economists have been calling for more financial backing from the government, and investors were hoping for a significant stimulus package. Although Lan indicated that more economic support is coming, it's uncertain if it will meet market expectations or how it will be allocated between consumption and real estate. The finance ministry also addressed local government debt issues, real estate stabilization, and job support. They allow local governments to use special bonds for land purchases and to apply affordable housing subsidies to existing inventory. Tax reductions for real estate are also under consideration, but the finance ministry emphasized that multiple policies are needed.

In a previous meeting led by President Xi Jinping, authorities called for stronger financial and monetary support without specifying details. Analysts estimate that fiscal stimulus could range from 2 trillion to over 10 trillion yuan. However, the effectiveness of such stimulus depends on its use—whether it solely supports local governments or boosts consumer spending. China's retail sales have seen only modest growth, and the real estate market remains sluggish. The country's GDP rose by 5% in the first half of the year, raising concerns about meeting its full-year target. Attention is now on the third-quarter GDP release on October 18. Economists are looking forward to more details at a parliamentary meeting later this month.

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