Could China's 'whatever it takes' moment be the catalyst for billions in new stimulus?

• Beijing is preparing to unveil new economic policies, which have investors eagerly anticipating the announcement.
• Earlier this week, China's top state planner disappointed investors with smaller-than-expected actions, causing a lengthy stimulus rally in Chinese markets to become volatile.
• Beijing may miss its 5% economic growth target for the year, but some analysts believe the authorities will provide significant fiscal stimulus at the upcoming event, while others are uncertain.

Beijing is set to unveil new economic policies over the weekend, which are eagerly anticipated by investors.

The Finance Minister of China, Lan Fo'an, will hold a press conference at 10 a.m. on Saturday local time to discuss intensifying fiscal stimulus policies, according to the State Council Information Office.

Beijing may miss its 5% economic growth target for the year, but some analysts believe the authorities will provide significant fiscal stimulus at the upcoming event, while others are uncertain.

Investors on edge

The National Development and Reform Commission held a press conference on Tuesday, shortly after markets reopened from a weeklong holiday, but did not announce a fresh package as investors had expected.

The chair of NDRC vowed to take several steps to boost the economy, but Zheng Shanjie did not reveal any new significant stimulus measures.

The move underwhelmed investors and caused a lengthy rally in the mainland Chinese markets to end in days of volatility.

The Chinese government is now in a "whatever it takes" mindset and will do "whatever is necessary to stop the economy's bleeding and get things moving," according to Chen Zhao, the chief global strategist at Alpine Macro, who spoke on CNBC's "Squawk Box Asia."

Zhao is expected to confirm at the press conference on Saturday.

Chinese officials announced a series of stimulus measures prior to the Golden Week holiday, including interest rate reductions, relaxed bank cash reserve requirements, looser property purchase rules, and liquidity support for the stock markets.

Beijing's decision to take drastic action to revive its ailing economy was viewed as a signal by many investors and analysts, following a barrage of disappointing data and a slump in consumer confidence. At the time, Chinese major indexes began to rally, surging over 25% as investors cheered on the slate of stimulus measures.

While most economists agree that some form of stimulus is necessary, there are varying opinions on its magnitude and the priorities of the package. Some experts have proposed a stimulus package ranging from 2 to 3 trillion yuan ($282.8 billion to $424.2 billion), while others have suggested a package worth 10 trillion yuan ($1.4 trillion).

Chetan Ahya, chief Asia economist at Morgan Stanley, stated that the package will primarily focus on boosting domestic demand, aiding bank recapitalization, and restructuring local government debt when speaking to "Street Signs Asia."

Social welfare spending could be the target of consumer stimulus measures, with the aim of increasing household savings, he said. Additionally, a small portion of the package could be allocated to support consumer trade-in programs.

Morgan Stanley's economists predicted that China's Ministry of Finance will announce a modest supplementary fiscal package at a press conference, which they referred to as "Beijing's second change to convince the market" following an earlier undershoot this week. Despite this, the economists acknowledged that market expectations are high.

A positive surprise would be achieved if there is a clear consumption stimulus portion or forward guidance for next year's expansionary policy, according to Morgan Stanley economists.

The forward guidance on 2025 is crucial, and we anticipate an additional two to three trillion yuan increase in the augmented deficit. However, we do not expect the size to be announced before the end of 2024.

In the trillions

Ahya of Morgan Stanley stated that Beijing should declare a 10 trillion yuan fiscal stimulus package aimed at increasing consumption and reducing property market inventory.

"They need something similar to what we are saying they will do in order to get the economy out of deflation and ultimately create a sustained turnaround in investors' confidence," he continued.

Ahya suggested that Beijing may phase out an enormous stimulus package to avoid sending a signal to the public that there are more severe underlying economic problems.

In 2023, China's GDP grew to 126 trillion yuan, and Ting Lu, the chief economist at Nomura, predicts that the finance ministry will announce a stimulus package no larger than 3% of China's GDP.

The NPC standing committee, China's top legislature, may discuss additional funding through the issuance of government bonds, but the exact numbers could come later this month.

In late September, Reuters reported that China planned to issue special sovereign bonds worth approximately 2 trillion yuan ($284.42 billion) this year, with half of the funds intended to stimulate domestic consumption and the other half to address local government debt issues.

Zhao of Alpine Macro stated that a two trillion yuan bond issuance is unlikely to revive the economy, and believes that the next stimulus package should be approximately 4-5% of GDP to address the lackluster consumption demand.

"The Chinese government is already backed to the corner and panicking, which is good news for the stock market. The finance ministry will unveil a package on Saturday that could make a bottom for the economy."

A Chinese political veteran has warned that any changes in fiscal policy must undergo extensive legal procedures for approval, which may hinder Zhao's aspirations for this weekend.

Dong Yu, a former official on China's top economic planning committee and current vice president of China Institute for Development Planning at Tsinghua University, stated in an article published Thursday that a fiscal stimulus package worth trillions of yuan will eventually be implemented, but people must exercise patience.