China plans increased debt issuance to support economy

China's government announced plans to issue more debt as part of efforts to stimulate the economy, boost the property market, recapitalize banks, and assist financially strained local governments.

At a press briefing in Beijing, Finance Minister Lan Fo’an indicated that more stimulus measures were forthcoming, stating, “Our countercyclical adjustment goes far beyond what I have mentioned,” and suggested that the government has substantial capacity to increase its deficit and debt, Caliber.Az reports per foreign media.

Investors are closely monitoring Beijing for signs of increased fiscal spending to complement existing monetary stimulus plans, particularly in light of ongoing uncertainties regarding the strength of the world's second-largest economy. Following a recent press conference where state planners did not provide specific details about enhanced fiscal support, Chinese stock markets experienced a decline.

Lan revealed that the government intends to issue bonds that would allow local governments to repurchase idle land from developers and address the issue of unsold new homes. Additionally, a special-purpose bond will be introduced to help large banks replenish their capital, thereby increasing their lending capabilities. The government will also extend further assistance to vulnerable groups, including students and low-income individuals.

However, specific amounts for the fiscal stimulus cannot be disclosed until approved by China’s National People’s Congress, which is expected to meet in the coming weeks. The recent stimulus initiatives come in response to declining consumer and investor confidence, exacerbated by a prolonged downturn in the property sector and government crackdowns on industries like e-commerce and finance.

In late September, Beijing pivoted to more aggressive measures, with the central bank introducing its most significant monetary stimulus since the pandemic. This led to a substantial 24% increase in the benchmark CSI 300 index prior to a week-long holiday, but markets faltered upon reopening after a disappointing briefing by state planners.

Alicia García-Herrero, chief Asia-Pacific economist at Natixis, expressed confusion over the lack of clarity in Beijing's spending plans, suggesting that the measures would not significantly lift the market. Conversely, Andy Rothman, an investment strategist at Matthews Asia, noted that recent communications from economic planners signify a “fundamental shift” under Xi Jinping's leadership, emphasizing the need for a substantial policy response to restore confidence among consumers and businesses.

Lan emphasized that easing the debt burden on local governments would be a primary focus, as many rely heavily on property-related revenues. Economists estimate that China requires up to Rmb10 trillion ($1.4 trillion) in additional stimulus over two years, primarily aimed at bolstering domestic demand. Last year, the government announced a Rmb1 trillion ultra-long special purpose bond to stimulate growth, with expectations of similar issuances in the future. Any issuance exceeding Rmb1 trillion would be considered additional stimulus.