Post-Finance Ministry Meeting: Investment Opportunities Analysis

On the morning of October 12th, the State Council Information Office held a press conference where the head of the Ministry of Finance introduced the situation regarding "strengthening the counter-cyclical adjustment of fiscal policy and promoting high-quality economic development," and answered questions from journalists.

The specific content mainly includes:

Firstly, to vigorously support local governments in resolving government debt risks, a significant increase in debt limits will be implemented to support local governments in dealing with implicit debt, allowing them to free up more energy and financial resources to promote development and ensure people's livelihoods. Regarding this point, China plans to increase the debt limit by a large scale in one go to replace the existing implicit debt of local governments, with the intensity being the greatest in recent years.

Secondly, special treasury bonds will be issued to support large state-owned commercial banks in replenishing their core tier-one capital, enhancing their risk resistance and credit extension capabilities, and better serving the development of the real economy.

Thirdly, a combination of local government special bonds, special funds, and tax policies will be used to support and promote the stabilization of the real estate market.

Fourthly, the support and protection for key groups will be increased. A one-time living subsidy has been distributed to people in difficulty before the National Day. Next, the support for student groups will be increased, and the overall consumption capacity will be enhanced.

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In addition, these four points are just the policies that have entered the decision-making process. The Ministry of Finance is also studying other policy tools, such as the central government's significant debt-raising space and deficit increase space.

(1) Incremental policies are expected to continue to be introduced, the expectation of marginal warming on the profit side is increased, and the risk preference on the denominator side is expected to be re-elevated.

Pay attention to the investment opportunities of the CSI 300 ETF (510330) and its linked funds (000051/005658), the SSE 50 ETF (510050) and its linked funds (001051/005733).

① The attitude of fiscal policy is highly positive. From the press conference, the Ministry of Finance has carefully prepared for the meeting, with all 1 minister and 3 deputy ministers attending, reflecting the high importance of the financial department for the current economic, market, and social expectations. Moreover, in the content release and Q&A session, the ministers almost answered all the questions that the market cares about within the scope of the authority and responsibility stipulated by the legal procedures of the Ministry of Finance, conveying a very positive attitude and confidence for future fiscal policies.Incremental fiscal support policies are anticipated: The research, decision-making, and implementation of fiscal policies are inherently complex, involving coordination between other ministries and localities. The press conference addressed a series of significant issues of current market concern, providing the Ministry of Finance's statements on the direction and pace of policy efforts. It was particularly noted that some major policies, such as intensified support for local debt resolution, have clearly entered the decision-making process, and it is expected that these policies will be released in a timely manner. Additionally, it was clearly expressed that a batch of incremental policies are continuously being studied and introduced, which are relatively positive for the market. It is anticipated that the various incremental policies of concern to the market will receive clearer responses at appropriate times in the future.

The recent market trends have been mainly driven by policy, with investors paying high attention to policy developments. According to the press conference content, fiscal policies have been significantly accelerated, reflecting a clear attitude that generally aligns with market expectations prior to the announcement. Specific fiscal figures that have not yet been disclosed, such as the scale of new special treasury bonds and special-purpose bonds, may also be announced sequentially after relevant legal procedures, including undisclosed measures that are expected to be announced in due course. Fiscal policy is more complex than monetary policy because it involves coordination across multiple departments and localities, leading to longer decision-making processes, slower execution speeds, and relatively lower autonomy. Before the subsequent policy efforts are intensified and implemented, the market still has expectations, and the current overall active trading range is expected to continue.

In the long term, it is more important to focus on the implementation of policies and their impact on the economic fundamentals. The effectiveness of fiscal policy on the economic fundamentals depends not only on the magnitude and direction of policy but also fundamentally on the implementation of policies, including the underlying pace, coordination, collaboration, and incentives.

(II) The Ministry of Finance will actively study and introduce policies and measures conducive to the stable development of the real estate market.

Attention is drawn to the Real Estate ETF Fund (515060) and its linked funds (008088/008089).

The real estate policies mainly include: supporting local governments in using special bonds to repurchase eligible idle land, and in areas with actual demand, they can also be used for new land reserve projects; using special bonds to purchase existing commercial housing for use as affordable housing; and urgently researching and clarifying value-added tax and land value-added tax policies that are aligned with the cancellation of standards for ordinary and non-ordinary residences, and further researching increased support efforts.

Allowing special bonds to be used for land reserves, two measures support the purchase of existing commercial housing. The use of special bonds for land reserves was previously halted by the State Council's executive meeting in September 2019, which required that special bond funds should not be used for land reserves and real estate-related fields. The main reason for the policy's resumption this time is the relatively large amount of idle undeveloped land in various regions. According to CRIC data, from 2021 to May 2024, 46% of the residential land in the key 30 cities was won by urban investment companies, and only 20% of these plots were fully started, with an overall start rate of 22%, and the unstarted construction area is about 330 million square meters.

Fiscal support for the digestion of inventory commercial housing and the optimization and improvement of related taxes. In the field of inventory reduction, the press conference once again mentioned the purchase of existing commercial housing for use as affordable housing. In terms of funding, in addition to the previous 300 billion yuan of affordable housing re-lending funds, two new forms have been added: special bonds and affordable housing project subsidy funds. The support method has also shifted from new construction to the purchase of existing stock. In the past three years, the central finance has arranged 212.4 billion yuan for affordable housing project subsidy funds and 280 billion yuan for central budgetary investment, and coordinated with local government special bonds, etc., to support the collection of 6.66 million sets of various types of affordable housing. It is expected that the pace of inventory reduction and the collection process in various regions will accelerate. Article 8 of the "Interim Regulations on Land Value-Added Tax" stipulates that taxpayers who build and sell ordinary standard residential housing with an increase in value not exceeding 20% of the deductible project amount are exempt from land value-added tax. Currently, several cities have adjusted or canceled the standards for ordinary residences, and it is expected that the value-added tax and land value-added tax that development enterprises are connected with ordinary residences will be reduced or canceled, taxes and fees are expected to be reduced, and profit levels may be improved.

In the previous Politburo meeting, policy adjustments in the real estate market were specifically mentioned. The meeting clearly stated the need to promote the real estate market to stop falling and stabilize, and to start from both the supply and demand sides to promote the healthy development of the real estate industry. The Ministry of Finance's press conference proposed to use local government special bonds, special funds, tax policies, and other tools to support and promote the real estate market to stop falling and stabilize. Restoring special bonds for land reserves can adjust the supply and demand relationship of the land market, and the landing of funds can alleviate the cash pressure of real estate companies. Supporting the purchase of existing houses can realize inventory reduction and meet the demand for affordable housing. Tax optimization can further reduce the cost of purchasing homes, stabilize market expectations, and promote the real estate market to stop falling and stabilize. It is recommended to pay attention to the Real Estate ETF Fund (515060) and its linked funds (008088/008089).

(III) In response to the two key risk areas of real estate and urban investment, fiscal policy is expected to further strengthen support for risk resolution, and banks' concerns about risks related to urban investment and real estate are expected to improve.Please pay attention to the Bank ETF Huaxia (515020) and its linked funds (Class A: 008298, Class C: 008299).

On the basis of arranging a local government debt limit of over 2.2 trillion yuan in 2023, China's central finance has arranged a quota of 1.2 trillion yuan for 2024 to support localities, especially high-risk areas, in resolving existing debt risks and clearing overdue corporate accounts, promoting the overall alleviation of local debt risks.

At the same time, he pointed out that the debt resolution policy to be implemented this time is the strongest measure to support debt resolution in recent years. This will help continue to promote the effective improvement of the economy in quality, and is also conducive to increasing the PB multiple of banks, which is a major benefit for the banking industry. In addition, the issuance of special government bonds to supplement the capital of large banks.

At the press conference of the State Council Information Office, Deputy Minister of Finance Liao Min announced that funds will be raised through the issuance of special government bonds and other channels to support state-owned large commercial banks in further increasing their core tier-one capital in a prudent and orderly manner.

At present, the Ministry of Finance has established an inter-departmental working group with relevant financial management and regulatory departments, waiting for each bank to submit specific capital replenishment plans. In recent years, the net interest margin of banks has narrowed, the profit growth rate has gradually slowed down, the pressure of internal capital replenishment has increased, and the difficulty of external capital replenishment has increased. This measure will effectively enhance the risk resistance and credit distribution ability of state-owned large commercial banks, and promote the banking industry to more effectively support the development of the real economy.

(4) It is clearly proposed to reasonably support the infrastructure construction of forward-looking and strategic emerging industries, and promote the development of new quality productive forces.

Please pay attention to the ChiNext 100 ETF Huaxia (159957) and its linked funds (Class A: 006248, Class C: 006249), and the STAR 50 ETF (588000) and its linked funds (Class A: 011612, Class C: 011613).

Since this year, the financial department has optimized the preferential tax policy, implemented the structural tax reduction and fee reduction policy, continued to implement policies such as pre-tax deduction of R&D expenses, additional deduction of VAT for advanced manufacturing enterprises, and tax exemption for the transformation of scientific and technological achievements, and improved the tax preferential policy for technical transformation of manufacturing enterprises.

From January to August, the main policies supporting scientific and technological innovation and manufacturing development have reduced taxes, fees, and refunds by more than 1.8 trillion yuan. The Ministry of Finance will vigorously implement the "two new" policy. Arrange about 300 billion yuan of ultra-long-term special government bond funds, starting from the end of August and the beginning of September, various places have successively introduced specific operational methods, mainly to strengthen the support for equipment renewal in key areas, further enhance the ability of local consumer goods to replace the old with the new, and effectively promote investment growth, release consumption potential, and promote industrial development.

The Ministry of Finance clearly proposed to reasonably support the infrastructure construction of forward-looking and strategic emerging industries, and promote the development of new quality productive forces. This is an important policy support direction for the rapidly developing technology industry.

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