On Saturday, China announced plans to “significantly increase” government debt issuance aimed at providing subsidies for low-income individuals, supporting the struggling property market, and replenishing the capital of state banks, all in an effort to revitalize its sluggish economic growth.
During a news conference, Finance Minister Lan Foan revealed that the government would implement additional “counter-cyclical measures” this year, though he did not specify the scale of the upcoming fiscal stimulus.
“There is still relatively big room for China to issue debt,” Lan stated, highlighting the government’s capacity to leverage debt for economic support.
The world’s second-largest economy is grappling with substantial deflationary pressures, driven by a sharp decline in the property market and weak consumer confidence. This situation has underscored China’s vulnerability to global trade tensions, given its heavy reliance on exports.
Recent economic data has consistently fallen short of forecasts, leading to growing concerns among economists and investors regarding the feasibility of the government’s 5% growth target for the year. There are fears of a prolonged structural slowdown.
Upcoming data for September is anticipated to reveal further economic weakness. However, Zheng Shanjie, chairman of the National Development and Reform Commission (NDRC), expressed strong confidence that the growth target would be achieved.
Speculation regarding China’s fiscal stimulus measures has intensified in global financial markets following a September meeting of the Communist Party’s top leaders, known as the Politburo, which emphasized the urgency of addressing escalating economic challenges.
Following that meeting, Chinese stocks surged to two-year highs, climbing 25% within days, though they later retreated as concerns grew over the lack of detailed information on the government’s spending plans.
According to Reuters, China intends to issue approximately 2 trillion yuan ($284.43 billion) in special sovereign bonds this year as part of its fiscal stimulus strategy. Half of this amount will be allocated to assist local governments in managing their debt, while the other half will fund subsidies for home appliances and other consumer goods, along with a monthly allowance of about 800 yuan ($114) per child for families with two or more children.
In addition, Bloomberg News reported that China is contemplating injecting up to 1 trillion yuan of capital into its largest state banks to enhance their ability to support the economy, primarily through the issuance of new sovereign bonds.
It’s important to note that additional debt issuance in China generally requires formal approval from its legislative body, which is expected to convene in the coming weeks.
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