Maps
Magazine

WORLD NEWS

China Pledges to Boost Debt for Economic Revival, but Details of Stimulus Package Remain Elusive
China pledges to "significantly increase" debt to boost its economy but provides no specifics on the stimulus, leaving investors anxious amid uncertainty over the stock market rally.
ND
by News Desk
2024-10-12
China Pledges to Boost Debt for Economic Revival, but Details of Stimulus Package Remain Elusive

China announced plans to "significantly increase" debt in an effort to revive its faltering economy. Finance Minister Lan Foan outlined measures to assist local governments with their debt problems, provide subsidies to low-income citizens, support the property market, and bolster state banks' capital. However, the lack of a specific dollar figure for the stimulus package has left investors anxious and uncertain about the future trajectory of the stock market rally.

 

In recent weeks, the world’s second-largest economy has shown signs of losing momentum, grappling with deflationary pressures and a significant downturn in the property market. The measures detailed by Lan were largely aligned with calls from investors for decisive action, yet the absence of concrete numbers is likely to prolong investor uncertainty until China’s legislature convenes to approve additional debt issuance—timing for which remains unannounced but is anticipated in the coming weeks.

 

"The press conference was strong on determination but lacking in numerical details," stated Vasu Menon, managing director for investment strategy at OCBC in Singapore. He added that the anticipated fiscal stimulus that investors hoped would sustain the stock market rally did not materialize, potentially disappointing many in the market.

 

Recent economic data has consistently missed forecasts, raising concerns that China's growth target of approximately 5% for the year is at risk, with fears of a longer-term structural slowdown. Analysts predict that forthcoming data for September will likely reflect continued weakness, although officials maintain "full confidence" that the 2024 growth target will be met.

 

Speculation regarding new fiscal stimulus has been prevalent in global financial markets since a recent meeting of the Communist Party's Politburo, which emphasized the need for urgent economic action. Following this meeting, Chinese stocks surged, reaching two-year highs with a 25% spike, but have since retreated as investors reacted to the lack of further policy details.

 

According to reports, China is expected to issue special sovereign bonds worth approximately 2 trillion yuan ($284.43 billion) as part of its fiscal stimulus strategy, with plans to utilize half of this amount to assist local governments with debt issues and the other half to subsidize purchases of home appliances and other essential goods.

 

Additionally, there are considerations for injecting up to 1 trillion yuan of capital into major state banks, although analysts caution that weak credit demand may hinder the effectiveness of such measures.

 

The People's Bank of China recently unveiled aggressive monetary support measures, including interest rate cuts and a liquidity injection of 1 trillion yuan, aimed at stabilizing the property and stock markets. While these actions have positively influenced market sentiment, experts stress that Beijing must also address deeper structural issues, such as boosting consumption and reducing dependency on debt-driven infrastructure investments.

 

Despite a public debt estimate from the International Monetary Fund at around 116% of GDP, officials insist that there is room for China to increase its debt issuance and fiscal deficit. Lan Foan indicated that local governments still possess a combined 2.3 trillion yuan available for expenditure in the final quarter of the year, and he mentioned new policies allowing municipalities to repurchase unused land from property developers.

 

China’s household spending remains alarmingly low—less than 40% of annual economic output—compared to the global average. High youth unemployment, low wages, and an insufficient social safety net contribute to this disparity. Despite previous pledges from officials to bolster domestic demand, meaningful progress has yet to be made.

 

Lan concluded the press conference by stating that more reforms will be announced "step-by-step," emphasizing the focus on closing fiscal gaps and addressing local government debt risks. However, without concrete strategies targeting demand and investment, alleviating deflationary pressures remains a formidable challenge.
Tagged:

Investors

MarketVolatility

ChinaEconomy

DebtIncrease

FiscalStimulus
Share News: