BEIJING (Reuters) – China’s Finance Ministry on Saturday announced fiscal stimulus measures aimed at reviving the struggling economy and meeting the government’s growth targets, without disclosing the size of the new measures.
In a press conference, the ministry said it would “significantly” increase bond issuance to subsidize low-income households, support the real estate market and recapitalize state-owned banks as part of efforts to accelerate economic growth.
The long-awaited press conference comes as central banks and other regulators announced in late September the most aggressive financial stimulus package since the coronavirus outbreak, including measures to boost the depressed real estate market, such as lowering mortgage rates. This was done after the announcement.
Reuters reported last month that China plans to issue special bonds worth about 2 trillion yuan ($283.02 billion) this year as part of a new fiscal stimulus package.
Below are the key policies announced by Finance Minister Lan Feng at a press conference with Vice-Minister of Finance Liao Min, Mr. Wang Dong-wei, and Vice-Minister of Finance Guo Tingting.
Local debt resolution
China will strengthen support for local governments to deal with hidden debt risks and strengthen the economic support capacity of local governments. This year, the government allocated 1.2 trillion yuan ($169.81 billion) in municipal bond facilities to eliminate existing hidden debts and settle government arrears owed to businesses.
China is planning a large-scale debt exchange program, alongside the continued use of bond allocations to resolve debt, which has been described as the “biggest” policy tool in recent years. The detailed policy will be announced after the necessary legal procedures are completed.
bank recapitalization
China plans to expand its use of local government bond proceeds to support its real estate market and recapitalize major state-owned banks. Special government bonds will be issued to strengthen the core Tier 1 capital of major state-owned commercial banks, improve their ability to withstand risks, and provide credit to the real economy.
Real estate market support
Local governments will be allowed to use special bonds to purchase unused land, strengthening their ability to manage land supply and reducing liquidity and debt pressures on both local governments and real estate developers. .
China will also support the purchase of existing commercial housing for use as affordable housing and continue to finance affordable housing projects.
The government is considering a value-added tax policy related to residential property, and is also considering other tax policies to support the property market.
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Support for low-income households and students
The government will strengthen support for low-income people and students to promote consumption. The number of national scholarships for undergraduate students will be doubled from 60,000 to 120,000 per year, and the amount of each scholarship will be increased from 8,000 yuan to 10,000 yuan per student per year.
Lan also said the central government has “relatively large scope” to increase debt and widen the budget deficit, although he did not elaborate.
China has set this year’s budget deficit at 3% of gross domestic product (GDP), down from last year’s revised figure of 3.8%. This year’s 1 trillion yuan special ultra-long-term government bond issuance is not included in the budget. Local governments plan to issue 3.9 trillion yuan in special bonds in 2024 (3.8 trillion yuan last year).
(1 dollar = 7.0666 Chinese Yuan)
(Reporting by Kevin Yao; Editing by Kim Cogill)
