On October 12th, the Ministry of Finance held a press conference that garnered nationwide and even global attention. Minister Lan Fuan, accompanied by several deputy ministers, mentioned many incremental fiscal policies but did not specify the exact scale. Prior to this, the market was abuzz with "small essays," with some claiming 2 trillion yuan, others 4 trillion yuan, and some even predicting 10 trillion yuan. What is the actual scale? The answer will only be revealed at the end of October to early November when the National People's Congress Standing Committee holds a budget adjustment meeting.

However, many professional institutions have inferred the scale of incremental fiscal funds for the next phase based on the public information from the press conference. For instance, researchers from Galaxy Securities predict that the relevant policies involve a minimum of 5 trillion yuan in specific volumes, while the Chief Industry Research Institute believes that the fiscal policy stimulus, including budget adjustments, is approximately 5 to 6 trillion yuan.

It can be seen that professionals generally predict that the scale of the new round of fiscal stimulus will be at least over 5 trillion yuan.

This figure is significantly higher than the initial 2 trillion yuan that circulated in the market, but it pales in comparison to the later-circulated 10 trillion yuan. At the same time, I would like to remind everyone that focusing solely on the numbers without considering the components may lead to a misjudgment of the situation. It is crucial to pay attention to how much of the money is truly incremental funds.

After watching the press conference, most people felt that the focus was on the word "debt resolution," which refers to solving the long-standing local government debt problem. To be more precise, it is about the local government's implicit debt, primarily consisting of urban investment bonds that are legally unrelated to the government but are essentially backed by local government credit.

Minister Lan Fuan clearly mentioned that last year, more than 2.2 trillion yuan of local government bond quotas were arranged to support debt resolution, and this year, 1.2 trillion yuan has been arranged. The future incremental policy will be the most significant measure to support debt resolution in recent years.

Since it is "the most significant measure," it will certainly be larger than the scale that has been in place over the past two years, surpassing last year's 2.2 trillion yuan is inevitable, and it may reach over 3 trillion yuan. This means that the amount spent on debt resolution accounts for 40% to 60% of the more than 5 trillion yuan in incremental fiscal funds.

These 2 to 3 trillion yuan funds cannot be considered "new money"; they are the replacement of existing debt, belonging to money that has already been spent. How to understand this? Let me give you an example.

Suppose a certain urban investment company borrowed 5 billion yuan from a bank a few years ago to build a highway. Since the money was borrowed by the urban investment company, it is not included in the local government's on-balance-sheet debt and is a typical form of local implicit debt. This year, the debt resolution work was initiated, and the central or local government issued a new government bond with a principal of 5 billion yuan. After raising the funds, they paid off the debt on behalf of the urban investment company, so the debtor changed from the urban investment company to the state or local government.

Don't be fooled by the government's increase in debt by 5 billion yuan, but this money is not used for investment, consumption, or other wealth-creating activities; it is merely a replacement of existing debts, transforming off-balance-sheet liabilities into on-balance-sheet liabilities. All debt resolution funds are of this nature.In addition to debt reduction, the second major incremental policy mentioned by Minister Lan is the issuance of special government bonds to support large state-owned banks in replenishing their core tier-one capital.

The six major state-owned banks in our country refer to the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank of China. The core tier-one capital adequacy ratio of these six large state-owned banks is all above 9%, and it has now been decided to invest more money to further increase the core tier-one capital adequacy ratio. Where will the invested money come from? It will be raised by issuing special government bonds.

This incremental policy represents genuine "new debt" and "new money," with an estimated scale between 500 billion yuan and 1 trillion yuan. This additional fund is directly invested in the six major banks, which can enhance their operational stability and enable them to provide more credit support to the real economy. However, in the short term, it cannot benefit the capital market.

After deducting the debt reduction exchange funds and the money specifically invested in the six major banks, there are still more than 2 trillion yuan that can immediately stimulate the economy. This figure matches the analyst's estimate of a gap of about 2 trillion yuan in this year's broad fiscal revenue.

To ensure the expenditure of "three guarantees," raising the deficit ratio or issuing special government bonds to raise more than 2 trillion yuan and then investing it in security can play a role in boosting short-term economic growth. Remember that the figures mentioned in the first foreign media "short essay" at the end of September were not much different from this.

"Father of Finance" did not mention the scale of fiscal policy at the meeting, giving the market ample room for imagination. Optimists believe that the policy exceeds expectations, while pessimists think it falls short of expectations, and there is a divergence. However, it can be clarified that the focus of future finance will be on local debt and real estate. The risks in these two areas are the biggest unfavorable factors restricting the development of China's real economy and the recovery of confidence at present. If they can be completely resolved, it will release long-term dividends.

As for how the capital market interprets it, I think everyone still needs to be cautious, because capital often pursues short-term benefits and wants quick money, which may not be able to quickly understand the long-term strategic planning and good intentions of the higher-ups.