China intends to significantly increase government debt to revitalise its economy but left investors guessing about the total amount of the stimulus package, an important detail in assessing the longevity of the recent stock market rally.
The measures come as the world’s second-largest economy is losing momentum and struggling to overcome deflationary pressures and boost consumer confidence amid a slump in the property market. Beijing will thereby help local governments tackle debt problems, offer subsidies to people with low incomes, support the property market and replenish the capital of state-owned banks, among other measures, Finance Minister Lan Foan told a press conference.
Lan said other policy instruments are also being discussed and are still under development, adding that there is enough room in the state budget to increase debt and increase the deficit. The remarks left room for such a plan to be implemented in the future, but he did not disclose which plan was being considered.
A number of economic data in recent months have failed to meet forecasts, raising concerns among economists and investors that the government’s target of around 5 per cent economic growth this year is in jeopardy and that a longer-term structural slowdown may be at hand.
Companies have cut hiring and wages, and a prolonged downturn in the property market has undermined consumer confidence by curbing spending. Chinese stock markets rose after the central bank and other government agencies announced measures in late September to revive the property sector and support financial markets. The government raised pensions and offered subsidies to people who swap old cars or appliances for new ones, but such moves failed to stimulate the economic situation.
China plans to issue about 2 trillion yuan ($284.43 billion) in special sovereign bonds this year as part of new fiscal stimulus measures. Half of the amount will be used to help local governments deal with their debt problems, while the other half will be used to subsidise the purchase of household appliances and other goods, as well as to fund a monthly allowance of about 800 yuan ($114) per child for all households with two or more children.
The finance minister said the government would roll out a package of additional measures to speed up the implementation of its current policies. The measures include increasing scholarships for students, issuing bonds to help large banks replenish their capital, and providing more support to highly indebted local governments, some of which have had to cut public services.
The economy remains sluggish despite the lifting of COVID-19-related restrictions at the end of 2022. The central bank announced the most aggressive monetary support measures since the COVID-19 pandemic in late September, including interest rate cuts, a 1 trillion yuan liquidity injection and other moves to support property and equity markets.
Although these measures boosted market sentiment, analysts say Beijing also needs to decisively address deeper-rooted structural problems, such as boosting consumption and reducing reliance on debt-fuelled infrastructure investment.
