M FoundationInvestor Presentation | Asia PacificChina Economics: A Bumpy Road to Reflation Morgan Stanley Asia LimitedRobin XingChief China Economist Robin.Xing@morganstanley.com +852 2848-6511 Morgan Stanley appreciates your support in the 2024 Institutional Investor All-Asia Research Team Survey. Voting will open early January 2024. For important disclosures, refer to the Disclosure Section, located at the end of this report.January 2, 2024 04:05 AM GMTM Foundation2Section 1: 2024 China Economic OutlookM FoundationMorgan Stanley Research32024 China Economic OutlookCEWC: Modest Stimulus vs. High TargetSource: Morgan Stanley ResearchPolitburo Meeting and CEWCPolicy ExpectationGrowth Target •Increase economic vitality and improve expectations•Factor in non-economic policies in the macro policy framework•Increased importance of economic growth in the policy objectives•An upbeat growth target of "around 5%“Fiscal Policy •Strengthen fiscal policy appropriately, with improved quality and effectiveness•Allow LGSB to be used as seed capital in more areas•Initial official budget and LGSB quota could be moderate•More reactive fiscal easing could be triggered in 2H should 1H growth miss the annual targetMonetary Policy •"Flexible and appropriate", suggesting modest easing•Strengthened innovation and coordination of policy tools•Increase the usage of pre-approved relending tools•Ample liquidity injections to facilitate government bond issuanceHousing Policy •Proactively de-risk the sector•Meet reasonable financing needs of developers•Accelerate social housing construction, public infrastructure buildup, and urban village rebuilding•Further easing of home purchase restrictions in tier 1 cities.•Increase financing support to some developers with via bank loans, debt and equity financing•Use policy bank tools (such as PSL) to support urban village renovation and social housingM Foundation42024 China Economic OutlookInitial Support May Not Be Sufficient; More Stimulus Could Be Triggered in 2HWe expect a 1.5 ppt expansion of augmented fiscal deficit to cushion the economyReported fiscal deficit is underwhelming Source: MoF, Morgan Stanley Research estimates (E)-20.4%-12.6%-16.0%-10.9% -11.7% -10.7%-12.1%-13.6%-22%-17%-12%-7%-2%3% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022Jan-Jun 2023Jan-Sep 2023Jan-Oct 20232023E2024EAugmented Fiscal Balance, % of GDPBudget BalanceTransfer from Govt. Fund to Budget BalanceSTB or PBoC Profit TransferLocal Govt. Special BondsSocial Security FundLGFV FundingPolicy Bank Finanial BondsPSL for Shartytown RenovationNet Land SalesAugmented Fiscal Balance• Reuters reported that Beijing will have the following fiscal policies in 2024:• 3% official budget deficit• Rmb1trn special treasury bonds• Rmb4trn LGSB• That said, below-target growth could trigger more fiscal expansion mid-yearM FoundationMorgan Stanley Research52024 China Economic OutlookSubpar Growth Reco...
