China’s top leaders ramped up urgent efforts to revive growth with pledges to support fiscal spending and stabilise the beleaguered property sector, giving new momentum to stimulus measures aimed at arresting a slowdown in the world’s second-largest economy.

President Xi Jinping’s huddle of the 24-man Politburo concluded with a promise to strive to achieve the country’s annual economic goals, the official Xinhua News Agency reported on Thursday. Officials pledged action to make the real estate market “stop declining”, in their strongest vow yet to stabilise the crucial sector, after new home prices fell in August at the fastest pace from the previous month since 2014.

The government will strictly limit the construction of new home projects, the Politburo said, as part of efforts to ease residential oversupply. No specifics were offered on the size of fiscal spending, with agencies likely to fill out the details in the coming days and weeks.

The Politburo readout was notable for its specific language addressing rate cuts, for example, compared with its typically sweeping statements. That departure underscores officials’ need to talk directly to markets, coming days after the central bank unleashed a powerful policy blitz that sent a benchmark stock index soaring by the most since 2020.

The instructions on the housing sector marked “the first time since the downturn began that the Politburo has explicitly targeted a market rebound”, Julian Evans-Pritchard, the head of China economics at Capital Economics, said in a note.

The readout came hours earlier than normal, just as afternoon trading began. After its release, China’s CSI 300 Index — a gauge of onshore Chinese stocks — extended gains to 4.2%, erasing losses for the year, while a gauge of developers tracked by Bloomberg jumped 15.9%.

The yield on China’s 10-year bonds rose three basis points to 2.06% as stocks soared. The yuan strengthened 0.2% to trade at 7.02 per dollar in the onshore market as of 4.20pm local time.

The focus on the economy in the Politburo meeting this month — the first time since 2018 — was unusual and speaks to officials’ desire to allay rising economic anxiety after China’s growth slowed to the worst pace in five quarters.

Leaders urged for “calm” in handling the current economic challenges, while seeming to acknowledge it is time for a shift in gear. Officials were given clear instructions to “face up to difficulties, strengthen confidence, and earnestly enhance the sense of responsibility and urgency of doing economic work well”.

Economists generally see the announcement as a pivot from authorities’ previous piecemeal approach to boosting the economy, even as the extent of any fiscal stimulus remains unclear.

“This stimulus package endorsed by today’s (Thursday) Politburo meeting represents a strategic shift in macro policy,” said Bruce Pang, the chief economist for Greater China at Jones Lang LaSalle Inc. “If there are more substantial fiscal supports and a pickup in government spending, it will probably be sufficient to drive a turnaround in business confidence, market sentiment and economic activities.”

In a sign the government is increasingly concerned about the economic malaise, the Politburo vowed to strengthen aid for people with difficulties in finding jobs and lower-income groups. The previous day the country said it will give one-off cash handouts to residents facing hardship and vowed more benefits for some unemployed people.

The Politburo also urged officials to “issue and make good use” of the ultra-long special sovereign bonds and local special notes to drive investment. Local governments have accelerated bond issuance since August after keeping the pace slow in the previous months, as they struggled to find quality projects to invest in while trying to reduce debt risks.

The readout could lead to a further expansion of the sectors that local officials can invest in to facilitate the use of the tool, said Ding Shuang, the chief economist for Greater China and North Asia at Standard Chartered plc. One effective way would be to allow local governments to buy unsold homes using funds raised from special bond sales, he said.

The decision-making body typically devotes only its April, July, and December sessions to discussions on the current economic situation. The last time such a meeting fell outside those months was March 2020, according to official readouts, when China was reeling from the outbreak of Covid-19. For the past four years, September sessions have focused mostly on party discipline or internal work.

The Politburo also called on the forceful implementation of cuts to interest rates and reserve requirements for banks, easing measures announced by the Chinese central bank this week.

Despite that, threats to the economy remain. The years-long real estate crisis that’s wiped out an estimated US$18 trillion in wealth from households has crushed appetite for spending and pushed China into its longest streak of deflation since 1999. Trade tensions with the US and Europe over claims of Chinese overcapacity are casting a cloud over the factory engine, which remains a rare bright spot.

The recent spade of stimulus measures has helped reduce to some extent concerns that China will miss its annual growth target of 5%. Previously, economists at Wall Street banks including Goldman Sachs Group Inc cut their full-year gross domestic product forecasts in the wake of miserable economic data in August showing that production, consumption and investment cooled across the board.

“The frequency and magnitude of policy rollouts have exceeded our expectations,” HSBC Holdings plc economists including Jing Liu wrote in a note. “The tide has turned; be prepared for more proactive initiatives.” 

  - Bloomberg