China’s finance ministry unveiled a fiscal stimulus package on Saturday designed to revive the economy and meet the government’s growth targets, withholding the exact size of the new measures.
During a press conference, the ministry announced a significant increase in government debt issuance to provide assistance to low-income households, bolster the property market, and fortify the capital of state banks as part of initiatives to jumpstart economic growth. This announcement comes on the heels of the central bank and regulators’ most aggressive monetary stimulus measures, such as mortgage rate cuts, introduced in late September.
Finance Minister Lan Fo’an detailed key measures at a news conference:
Local Debt
China will step up support for local governments to tackle hidden debt risks, enhancing their capability to support the economy. This year, the government has allocated 1.2 trillion yuan ($169.81 billion) in local bond quotas to resolve existing hidden debts and settle government arrears for firms.
Additionally, China plans to implement a substantial debt swap program and continue using bond quotas for debt resolution, characterized as the most significant policy measure in recent years.
Bank Recapitalization
China will broaden the utility of proceeds from local government bonds to support the property market and recapitalize major state-owned banks. Special treasury bonds will be issued to strengthen the core Tier-1 capital of prominent state-owned commercial banks, improving their risk resilience and capacity to provide credit to the real economy.
Property Market
Local governments will be permitted to use special bonds to acquire undeveloped land, enhancing their land supply management capabilities and reducing liquidity and debt pressures on both local governments and property developers. China will also facilitate the purchase of existing commercial properties for conversion into affordable housing and continue funding projects for affordable housing. The government is exploring policies concerning value-added taxes linked to residential properties and other tax measures to support the property market.
Support for Low-Income Households and Students
The government will amplify support for low-income individuals and students to stimulate consumption. The number of national scholarships for undergraduates will double from 60,000 to 120,000 annually, with the value of each scholarship rising from 8,000 yuan to 10,000 yuan per student per year.
Lan mentioned that the central government has room to increase debt and the budget deficit significantly but withheld specifics. China has set this year’s budget deficit at 3% of GDP, down from 3.8% last year. Furthermore, the issuance of 1 trillion yuan in special ultra-long treasury bonds this year is excluded from the budget, with local governments set to issue 3.9 trillion yuan in special bonds in 2024, an increase from 3.8 trillion yuan last year.
