China may raise $850 billion in new debt over three years to spur growth, says report
2024.10.14 23:56
By Kevin Yao and Liangping Gao
BEIJING (Reuters) – China may raise an additional 6 trillion yuan ($850 billion) from special treasury bonds over three years to help bolster a sagging economy through expanded fiscal stimulus, Caixin Global reported, citing multiple sources with knowledge of the matter.
The report comes after Finance Minister Lan Foan on Saturday said Beijing will “significantly increase” debt to stimulate the economy, although the absence of details on the size and timing of the fiscal measures disappointed some investors.
Reuters reported last month that China planned to issue special sovereign bonds worth about 2 trillion yuan ($285 billion) this year as part of fresh fiscal stimulus.
Data in recent months, including Monday’s trade and new lending figures for September, missed expectations, raising concern that China may not reach this year’s roughly 5% growth target and will struggle to fend off deflationary pressures.
In late September, authorities unleashed monetary stimulus and property sector support measures. Soon after, a meeting of top Communist Party leaders, the Politburo, vowed the “necessary spending” to bring growth back on track.
Since then, the size of the expected fiscal package has been the subject of intense speculation in financial markets. Chinese shares soared to two-year-highs in anticipation, before retreating in the absence of official details.
On Tuesday, the and the blue-chip CSI300 were down about 0.3% each.
While not the bazooka some investors had been calling for, analysts say 6 trillion yuan in extra debt in the next three years could help stabilise growth.
“The probability of reaching a growth rate of about 5% at least in 2024 and 2025 would increase a lot,” said Bruce Pang, chief China economist at Jones Lang LaSalle.
The late Monday Caixin article said the funds will be partly used to help local governments resolve their off-the-books debts, according to the sources. The reported amount is equivalent to nearly 5% of China’s economic output.
The International Monetary Fund estimates central government debt at 24% of economic output. But the fund calculates overall public debt, including that of local governments, at about $16 trillion, or 116% of GDP.
A severe downturn is the property sector since 2021 has shrunk local government revenues, as a large portion of their income had relied on auctioning land to real estate developers.
The property crisis has weighed on consumer and business activity, exposing China’s overreliance on external markets and government-led, debt-driven investment in infrastructure and manufacturing.
Low wages, high youth unemployment and a feeble social safety net mean China’s household spending is less than 40% of annual economic output, some 20 percentage points below the global average. Investment, by comparison, is 20 points above.
The finance ministry said the looming fiscal stimulus would provide subsidies to low-income households, support indebted local governments and the property market and replenish state banks’ capital.
At China’s annual parliament meeting in March, Premier Li Qiang said that starting this year the government would issue ultra-long-term special treasury bonds for several consecutive years, to be used to fund major national strategic projects.
China’s current plans are to issue 1 trillion yuan in such bonds this year, but that figure is widely expected to be increased at a meeting of the Standing Committee of the National People’s Congress, the top legislative body, likely to be called in coming weeks.
($1 = 7.0870 yuan)
