China eyes $850b debt to fuel growth
China is considering raising an extra 6 trillion yuan ($850 billion) through special treasury bonds over 3 years to boost its struggling economy, according to local media reports. This news failed to lift investor sentiment in the country’s stock market.
The report from Caixin Global, based on sources familiar with the situation, follows Finance Minister Lan Foan’s statement on Saturday that Beijing plans to “substantially increase” debt. However, the lack of specifics on the scale and timeline of the fiscal measures left some investors disappointed.
The expected fiscal package has been a subject of intense speculation in financial markets. Chinese shares reached two-year highs earlier this month on news of the stimulus but retreated in the absence of official clarity.
On Tuesday, the Shanghai Composite and CSI300 indices dipped by approximately 0.3 per cent, indicating limited enthusiasm among investors for the reported stimulus amount. Analysts, however, believe that even this level of stimulus could help stabilize growth in the near term.
Xing Zhaopeng, ANZ’s senior China strategist, noted that the reported stimulus is in line with expectations and that a growth target of around five per cent for next year remains achievable.
China plans to issue special sovereign bonds worth around 2 trillion yuan ($285 billion) this year to boost fiscal stimulus, according to Reuters.
Recent data, such as trade and new lending figures for September, have fallen short of expectations, leading to concerns that China may not achieve its five per cent growth target for the year and could face deflationary pressures.
In late September, authorities implemented monetary stimulus and support measures for the property sector. Following this, the Politburo, a group of top Communist Party leaders, pledged to increase spending to boost growth.
Bruce Pang, chief China economist at Jones Lang LaSalle, believes that the reported 6 trillion-yuan stimulus could significantly increase the probability of achieving a growth rate of around five per cent in both 2024 and 2025.
According to the Caixin article, the funds raised from the special treasury bonds would be partially used to help local governments address their off-the-books debts. The reported amount represents nearly five per cent of China’s economic output.
The International Monetary Fund estimates central government debt at 24 per cent of economic output. However, the fund calculates overall public debt, including local government debt, at around $16 trillion, or 116 per cent of GDP.
Attribution: Reuters
Subediting: M. S. Salama
