China reaction: Coordinated fiscal supports on the way

Unusual meeting agenda addresses economic issues

China’s top leaders have pledged to introduce further fiscal measures following today’s Politburo meeting, building on the PBoC’s announcement of monetary easing two days ago. During the meeting, officials addressed critical challenges currently in China’s economy, including the ongoing property market downturn. Notably, the long-overlooked household sector received increased policy attention. Beijing committed to addressing the softening labour market by promoting employment opportunities for new graduates and migrant workers and improving the wage payment system to prevent reduced, delayed or missed payments. Additionally, the government vowed to support enterprises—particularly small and medium-sized private companies—aiming to increase wage growth for mid- to low-income earners and ease financial pressures on these households.

It is unusual for the Politburo to focus on economic issues in September, but enhanced fiscal support was expected to align with the PBoC's monetary measures announced two days prior. These steps also help improve the overall economic atmosphere ahead of National Day on 1st October.

Consumer vouchers to stimulus private spending

To combat persistently weak consumer spending, some local governments have introduced additional stimulus measures ahead of today’s party meeting. The Shanghai government has issued RMB 500 mn in consumer vouchers funded by local authorities. These vouchers can be used for dining, accommodation, cinema tickets, and sports events, with the first batch available from Saturday, 28th September. Meanwhile, Sichuan province has released more than RMB 400 mn of consumer vouchers from its provincial budget, a significant portion of which is earmarked to boost spending on home improvement.

We have long been concerned about weak and weakening consumer spending in China, which risks tipping the economy into a demand-deflation trap. The issuance of consumer vouchers in these regions is a positive step towards reviving consumer sentiment. However, given that the funding for these programmes falls to local authorities, it is essential for the central government to provide sufficient financial support—potentially through fiscal transfers—to prevent an increase in credit risk at the local government level.

Policy transmission key after pledges

Today’s announcements were well received by the market, with the Hang Seng and CSI 300 index both rising by over 4%, and more than 10% over the past three days. However, as is typical for Politburo meetings, Beijing disclosed limited specific details about its measures. The focus now shifts to upcoming announcements, likely to be delivered at the local government level, and to ensuring the effective implementation of these policies.