Kevin Yao and Joe Cash
BEIJING (Reuters) – China pledged on Saturday to “significantly increase” its debt to revive its struggling economy, but investors speculated on the overall size of the stimulus package, weighing on recent stock market gains. This is a crucial detail in gauging whether the rally will last.
Finance Minister Lan Feng said at a press conference that the Chinese government will help local governments tackle their debt problems and take measures such as providing subsidies to low-income earners, supporting the real estate market and recapitalizing state-owned banks. He said he would go.
All this comes as the world’s second-largest economy loses momentum and struggles to overcome deflationary pressures and boost consumer confidence amid a sharp downturn in the real estate market, with investors turning to China. These are the measures we have been urging people to take.
But Lan’s omission of the dollar figure from the package could prolong the nervous wait for a clearer policy roadmap for investors until the next meeting of China’s rubber-stamp Legislative Council, which will approve additional bond issuance. is high. The date of the meeting has not yet been announced, but is expected in the coming weeks.
Vasu Menon, managing director of investment strategy at OCBC in Singapore, said the press conference was “strong in determination but lacked quantitative details”.
“The big-bang fiscal stimulus that investors were hoping for to keep the stock market rally didn’t materialize,” Menon said, adding that this “may disappoint some” in the market. .
Broad economic data has been weaker than expected in recent months, leaving economists and investors wondering whether the government’s growth target of around 5% this year is in jeopardy and whether a longer-term structural slowdown could be playing a role. There is growing concern that there is.
Officials expressed “full confidence” that the 2024 target will be met, although September figures due next week are expected to show further weakness.
A new fiscal stimulus package has been the subject of intense speculation in global financial markets since the Communist Party’s Supreme Leader’s Politburo meeting in September signaled a growing sense of crisis for the economy.
Chinese stocks hit a two-year high within days of the meeting, surging 25%, but fell back as tensions rose after officials failed to provide further policy details. Global commodity markets, from iron ore to industrial metals to oil, are also volatile on hopes that stimulus measures will boost weak Chinese demand.
Reuters reported last month that China plans to issue special bonds worth about 2 trillion yuan ($284.43 billion) this year as part of a new fiscal stimulus package.
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Half of the money will be used to help local governments tackle debt problems, and the other half will subsidize the purchase of home appliances and other goods, giving every two-person household about 800 yuan per month per child (approx. The plan is to provide an allowance of $114. or older children.
Separately, Bloomberg News reported that China is also considering injecting up to 1 trillion yuan in capital into state-owned banks, but analysts say more will be needed given stubbornly weak credit demand. He said the company’s financing capabilities will be put to use.
Step up stimulation
In late September, the People’s Bank of China announced its most aggressive financial support package since the coronavirus pandemic, including interest rate cuts, a 1 trillion yuan liquidity injection and other measures to support real estate and stock markets. did.
Analysts say that while the measures have lifted market sentiment, Beijing also needs to tackle deeper structural issues, such as increasing consumption and reducing reliance on debt-driven infrastructure spending. are.
Most of China’s fiscal stimulus still goes toward investment, but this has led to debt outpacing economic growth as revenues decline.
The International Monetary Fund estimates that central government debt is 24% of economic output. However, the fund estimates that total public debt, including local governments, is approximately $16 trillion, or 116% of GDP.
“China still has relatively large room to issue debt and increase its fiscal deficit,” Lan said.
He added that local governments still have to spend a total of 2.3 trillion yuan in the last three months of this year, including debt facilities and unused funds. He said local governments would be allowed to buy back unused land from real estate developers.
Low wages, high youth unemployment and a weak social safety net mean that household spending in China is less than 40% of annual economic output, about 20 percentage points below the global average. In contrast, investment was 20 points ahead.
Chinese officials have repeatedly promised over the past decade to step up efforts to boost domestic demand, but little progress has been made in that regard, which would require a fundamental structural rethink of many policies and institutions. Probably.
Mr Lunn said further reforms would be announced “in stages”.
“The focus seems to be on financing the fiscal gap and solving local government debt risks,” Huang Xuefeng, director of credit research at Shanghai Anfang Private Fund, said at a press conference.
“Without deals targeting demand and investment, it will be difficult to ease deflationary pressures.”
(Reporting by Joe Cash, Kevin Yao, Ellen Chan and Anker Banerjee; Writing by Eduardo Baptista and Marius Zaharia; Editing by Kim Coghill)
