According to a recent report by Caixin Global, China is considering the issuance of an additional 6 trillion yuan in special treasury bonds over the next three years. This fiscal initiative aims to revive the flagging economy by significantly increasing government spending, as confirmed by Finance Minister Lan Fo’an last Saturday.
Despite Minister Lan’s announcement that Beijing intends to “significantly increase” its debt to fuel economic growth, the absence of detailed information regarding the scale and timing left some investors unimpressed. This news follows recent economic data that underscored the country’s struggle to meet its 5% growth target for the year, compounded by weaker-than-expected trade and new lending figures for September. These indicators have heightened concerns about China’s ability to combat deflationary pressures.
The revelation of the potential fiscal stimulus comes shortly after the Chinese government introduced both monetary stimulus and property sector support in late September. A subsequent Politburo meeting underscored commitments to necessary expenditures to stabilize economic growth.
Financial markets have been rife with speculation on the potential size of this fiscal package, with Chinese shares briefly hitting two-year highs in anticipation. While the 6 trillion yuan plan may not meet some market participants’ hopes for more aggressive measures, analysts believe it could significantly bolster economic stability.
Bruce Pang, chief China economist at Jones Lang LaSalle, commented, “The probability of reaching a growth rate of about 5% at least in 2024 and 2025 would increase a lot with this level of fiscal intervention.” The Caixin report also noted that part of the raised funds would address local governments’ undeclared debts, representing nearly 5% of China’s GDP.
According to estimates from the International Monetary Fund, China’s central government debt currently stands at 24% of its GDP. However, when including local government liabilities, the nation’s total public debt escalates to approximately 116% of its GDP, or about $16 trillion.
