Caixin Research Institute Macro Team Macro Interpretation: Several Interpretations of the September 29 Fiscal and Monetary Policy Package

Caixin Research Institute Macro Team: Wu Chaoming, Hu Wenyan, Li Mo

Event: On the afternoon of September 29, the central bank adjusted and improved four structural monetary policy tools, and the Ministry of Finance led three ministries and commissions to implement a housing loan interest subsidy policy for residents nationwide. Our interpretation is as follows:

First, the policy tone: backstop-style easing rather than strong stimulus, stabilizing the short-term growth slope. This policy package is a rapid implementation of the September 28 State Council executive meeting's call to "roll out a batch of pragmatic and effective incremental policies," marking the start of a new round of growth stabilization. The policy intensity remains restrained, without using aggregate tools such as reserve requirement ratio cuts or interest rate cuts. Instead, it focuses on fiscal-monetary coordination and structural tools. The core goal is to improve policy transmission efficiency and ensure a smooth conclusion to the annual growth target — stabilizing the "short-term growth slope" rather than launching a "credit expansion cycle." The timing is also significant: the tone was set on September 28, documents were issued on September 29, and implementation began on October 1. Completing "tone-setting, document issuance, and implementation" in three days not only leaves a window for generating physical work volume in the fourth quarter but also releases a signal before the holiday amid low capital market sentiment and shrinking trading volume, pursuing both growth stabilization and expectation stabilization.

Second, the policy lever: Pledged Supplementary Lending (PSL) price cuts and scope expansion to unclog bottlenecks, with infrastructure taking the lead in stabilizing growth. This adjustment lowers the one-year PSL rate from 1.75% to 1.5% and brings the "six networks" — water networks, new-type power grids, computing networks, next-generation communication networks, underground pipeline networks, and logistics networks — into the supported areas. The policy is highly targeted. Since the new policy-based financial instruments began disbursement in early September, only over 100 billion yuan has been deployed, noticeably slower than last year's pace of full deployment within one month, constraining the recovery of infrastructure investment growth in the fourth quarter. This adjustment addresses the problem directly: on one hand, it restores the willingness of policy banks to lend. Constrained by PSL rates being significantly higher than policy financial bond yields, PSL scale has been continuously shrinking in recent years. After the rate is lowered to 1.5%, the cost-benefit constraints on policy banks supporting the real economy are noticeably eased. On the other hand, it matches effective investment projects. PSL was previously concentrated in shantytown renovation, underground utility tunnels, major water conservancy, and other areas. This expansion to the "six networks" forms a relay with the supported areas of new policy-based financial instruments, opening space for generating physical work volume in infrastructure investment in the fourth quarter.

Third, housing interest subsidies: supporting rigid demand, reducing inventory, and safeguarding livelihoods, with a relatively moderate boost. The Ministry of Finance will subsidize 1 percentage point of interest on eligible newly issued housing loans at the national level. The policy design has three major innovations: First, central fiscal leadership — subsidy funds are shared between the central and local governments at 90% and 10% respectively, avoiding the implementation discount of past policies where "the center sets policy and localities pay." Second, it does not harm banks' net interest margins. The subsidy directly helps residents save about one-third of interest costs while not squeezing banks' net interest margins, boosting both home-buying and lending willingness. Third, it precisely targets rigid demand. The four conditions — first homes, under 120 square meters, total price under 1.5 million yuan, and a subsidized loan cap of 1 million yuan — combine to direct policy benefits mainly to rigid-demand projects in third- and fourth-tier cities, county towns, and outer suburbs of first- and second-tier cities, precisely where inventory pressure is greatest and where the real demand of new citizens and young people is most concentrated. The policy intent clearly points to supporting rigid demand, reducing inventory, and safeguarding livelihoods, rather than stimulating speculation. However, the stimulus effect should be viewed rationally. The subsidy essentially encourages residents to add leverage, while the fundamental reality of slowing income growth for new citizens under K-shaped divergence remains unchanged. The roughly 50,000 yuan in interest savings mainly mobilizes rigid-demand groups who already had home-buying plans and were in a wait-and-see state, and the pull on incremental demand faces discounts. Overall, the policy will help stabilize property transactions from the fourth quarter to the first half of next year, but its pull on the supply side is limited. Its significance for livelihood protection outweighs its significance for cyclical stimulus.

Fourth, refinancing expansion: supporting both sci-tech innovation and agriculture and small businesses, with emphasis on structural adjustment and employment stabilization. The second expansion this year of refinancing for sci-tech innovation and for agriculture and small businesses reflects the policy orientation of structural tools to "shore up weak links and stabilize entities." On one hand, it helps the transition between old and new growth drivers. The refinancing quota for technological innovation and industrial upgrading has been increased to 1.4 trillion yuan and the support ratio raised to 100%, with the central bank providing full low-cost funding, which helps break the incentive constraints that make banks "afraid to lend and unwilling to lend," injecting source vitality into cultivating new quality productive forces. On the other hand, it directly addresses structural employment pain points. Of the 500 billion yuan in new refinancing quota for agriculture and small businesses, 60% (300 billion yuan) is specially allocated to private enterprises. The core consideration is that structural employment pressure is increasing, and stabilizing private enterprises means stabilizing employment. Overall, this policy package is mainly based on structural tools. Housing interest subsidies are the only measure directly acting on the resident demand side. Incremental policies deployed at the September 28 State Council executive meeting, such as "making good use of the carryover limit of local government debt," have not yet been introduced, and direct intervention in residents' income and consumption expectations remains blank. If subsequent economic data still falls short of expectations and pessimistic market sentiment is not reversed, it is possible that aggregate tools such as reserve requirement ratio cuts and interest rate cuts will follow. September 29 may only be the prelude to coordinated fiscal-monetary expansion. Given that the market already has sufficient expectations for fourth-quarter incremental policies, and this round of the policy package is moderate in intensity and focused on backstopping, the short-term boost to A-shares is expected to be limited. Going forward, it is necessary to closely track the pace of incremental policy implementation and feedback from the real economy.