Song Xuetao: What incremental signals were released at the press conference of the five ministries?

On March 6, 2025, the Third Session of the Fourteenth National People's Congress held an economic themed press conference, with the heads of the National Development and Reform Commission, the Ministry of Finance, the Ministry of Commerce, the People's Bank of China, and the China Securities Regulatory Commission attending the event. This press conference released many signals of incremental policies, especially in the statements made by the Ministry of Finance and the National Development and Reform Commission. First, the central government has reserved sufficient policy reserves. Minister of Finance Lan Foan stated: "In order to deal with possible uncertainties at home and abroad, the central government has also reserved sufficient reserve tools and policy space." What are the "Central Fiscal Reserve Policies" mentioned? The first type of reserve policy is focused on consumption, distributing livelihood subsidies such as childcare subsidies. One type of livelihood subsidy is distributing childcare subsidies to specific groups, as mentioned in the government work report which explicitly states the need to "provide childcare subsidies" to increase the disposable income and consumption ability of specific groups, directly promoting consumption. The key factor affecting the scale of childcare subsidies is whether only-child families will be included in the subsidy range. The basic assumption only considers children aged 0-3 (excluding 3 years old), with a monthly subsidy of 800 yuan per person. According to the "2022 Health and Health Development Statistics Report", the proportion of second-child and above births in China is around 55%. Over the past three years, the total number of newborns in China has been around 28 million, which means that approximately 15.5 million people could receive childcare subsidies, with the annual scale of childcare subsidies being around 150 billion yuan. Another type of livelihood subsidy is to continue expanding the scope of the "trade-in old for new" policy to increase residents' consumption ability. According to our estimates, the multiplier effect of the "trade-in old for new" policy was around 2.2 times last year. From September to December 2024, the special national bonds used for the "trade-in old for new" policy for cars amounted to around 110 billion yuan, with a 9:1 co-investment by the central and local governments, totaling around 122.4 billion yuan in subsidies. This led to a 14.7% increase in car consumption, equivalent to 268.3 billion yuan, with a multiplier effect of 2.2 times. This year, the government work report has already allocated 300 billion yuan in special national bonds for the "trade-in old for new" policy. After expanding the subsidy range to include digital products, home consumer goods, and electric bicycles at the beginning of the year, there is also a possibility of further expanding it to include service consumption. Considering the significant multiplier effect of the "trade-in old for new" policy, if uncertainties at home and abroad increase, there is a possibility of further increasing the scale of the trade-in old for new subsidies this year. The second type of reserve policy focuses on investment, such as issuing special bonds for central enterprises or increasing special national bond issuance for major central projects. This year marks the end of the 14th Five-Year Plan and a crucial year for laying the foundation for the 15th Five-Year Plan. If uncertainties increase, there is a possibility of increasing the issuance of special national bonds to promote the construction of major projects in the central reserves, or the possibility of laying the groundwork for major projects in the 15th Five-Year Plan. The flexibility of quasi-fiscal instruments can meet the needs of fiscal policy decisions. One type of tool is the special bonds for central enterprises, such as the approval in November 2024 for China National Innovation and China Chengtong to issue 20 billion yuan and 30 billion yuan respectively in "steady growth and expansion investment special bonds", to support key investments in "double innovation" and "two new" projects. If uncertainties both internally and externally exceed expectations, there is also a possibility this year of levering up by central enterprises such as China National Innovation and China State Development. Another type of tool is the development financial tools, such as the 739.9 billion yuan in policy-based development financial tools released in 2022, used to support major project construction in transportation, energy, water conservancy, cold chain logistics, vocational education, municipal infrastructure, industrial park facilities, affordable housing projects, and new infrastructure. The third type of reserve policy focuses on debt conversion, such as supplementing capital for the second batch of large state-owned commercial banks. Large state-owned commercial banks play an important role in debt conversion and "effectively preventing risks of default by real estate companies". As of the end of September 2024, the core Tier 1 capital adequacy ratios of China Construction Bank Corporation, Industrial and Commercial Bank of China, Bank Of China, Agricultural Bank Of China, BANKCOMM and Postal Savings Bank Of China were 14.10%, 13.95%, 12.23%, 11.42%, 10.39% and 9.28% respectively, exceeding the minimum regulatory requirements by 5.1, 5.0, 3.2, 2.4, 1.9 and 1.3 percentage points. Static ally, the overall capital adequacy of the six major banks is sufficient. However, dynamically, if uncertainties both internally and externally increase, the capital adequacy of large state-owned commercial banks may be tested. On the one hand, with the expansion of credit, commercial banks need to meet regulatory requirements and top up a relative amount of core capital each year, but under the pressure of narrowing net interest margins, it is difficult for banks to increase capital by retaining profits. On the other hand, if risks and uncertainties in key areas increase in the future, there will be a need to increase the intensity of debt conversion, which may put pressure on the capital adequacy ratios of banks. Secondly, establishing a national venture capital guidance fund. Zheng Zhijie, Director of the National Development and Reform Commission, stated at the press conference of the five ministries: "A national venture capital guidance fund will be established." The investment focus of the "National Venture Capital Guidance Fund" is mainly on "artificial intelligence, quantum technology, future energy, bio-medicine, and other cutting-edge fields." The positioning is "to invest in seed and early-stage enterprises through market-oriented ways, appropriately considering small and medium-sized enterprises in the early to middle stages, supporting original and disruptive technological innovation and key core technology research and development." This positioning is similar to the Defense Advanced Research Projects Agency (DARPA) established in the United States in 1958. DARPA was founded during the "Sputnik moment" in the United States. At that time, in order to maintain its leadership in cutting-edge technology competition, the U.S. established an official technology investment agency. Since its establishment, DARPA has made significant technological breakthroughs in areas such as GPS, the Internet, and chip technology, leveraging a large amount of disruptive technology output with relatively low defense spending. The success of the DARPA model has both market incentives and has led to significant technological breakthroughs in several areas like chips, Internet, and GPS.Previous research provided funding and operational support, incentivizing market entities to participate in technological innovation, and also established a reasonable error correction mechanism. This also echoes the government work report's mention of "playing the leading role of technology-leading enterprises" and "promoting the formation of an innovative environment that encourages exploration and tolerates failure."The establishment of a national venture capital guidance fund is a further deployment of "giving full play to the advantages of the new national system, strengthening the research and development of key core technologies and cutting-edge, disruptive technologies, accelerating the organization and implementation of major scientific and technological projects, and making advanced arrangements". This article is from the WeChat public account "Xuetao Macro Notes", authored by Guojin Macro Song Xuetao; GMTEight editor: Wenwen.