The Nub

The State Council, China’s Cabinet, outlined a 19-point policy package on Wednesday, including another 300 billion yuan that state policy banks can invest in infrastructure projects, on top of 300 billion yuan already announced at the end of June. Local governments will be allocated 500 billion yuan of special bonds from previously unused quota. At a meeting chaired by Premier Li Keqiang, the State Council vowed to make use of “tools available in the toolbox” to maintain a reasonable policy scale in a timely and decisive manner, according to a readout from state broadcaster CCTV.  

Why Does it Matter

The State Council also said the economy won’t be flooded with excessive stimulus, and that China won’t “overdraw” on the room it has to take more policy action to protect longer-term growth – reiterating the relatively cautious stance officials have taken toward stimulus this year. The meeting sent a signal: “Don’t expect massive additional stimulus,” according to Bruce Pang, head of research and chief economist for Greater China at Jones Lang LaSalle. He added that the language used in the announcement suggested “the possibility of adopting extraordinary tools such as special sovereign bonds or increasing the official budget deficit has decreased.”

What Next

The State Council on Wednesday also pledged to approve a batch of infrastructure projects. Local authorities are encouraged to use city-specific credit policies to support reasonable housing demand, it said. Amid an energy crunch triggered by drought, support was also directed toward state-owned power generation companies, which will be allowed to sell 200 billion yuan of bonds. Another 10-billion yuan of subsidies will be offered to the agricultural sector. The State Council also pledged to continue lowering financing costs and introduce measures to support the development of private businesses and platform companies.