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China’s Economic Stimulus: A Comprehensive Plan
China is set to bolster its struggling economy by potentially raising an additional 6 trillion yuan ($850 billion) through special treasury bonds over the next three years. This strategy aims to enhance fiscal stimulus, as reported by Caixin Global on October 14, 2024.
Increased Debt to Stimulate Growth
Finance Minister Lan Foan announced that Beijing will significantly increase its debt to stimulate economic activity. While this declaration has ignited investor interest, the lack of specifics on the size and timing of these measures has led to disappointment. In September 2024, it was reported that China plans to issue 2 trillion yuan ($285 billion) in special sovereign bonds this year as part of its fiscal strategy.
Economic Concerns and Growth Targets
Recent economic data, including trade and lending figures, have raised concerns that China may not meet its growth target of approximately 5% for the year. The property sector's downturn since 2021 has severely impacted local government revenues, revealing an overreliance on land sales to developers for income.
Market Reactions and Expectations
Chinese stock markets initially surged on speculation about the fiscal package but experienced a setback due to the absence of clear details. Analysts believe that the proposed 6 trillion yuan in debt could stabilize economic growth, enhancing the likelihood of achieving the government’s growth targets for 2024 and 2025. Bruce Pang, chief China economist at Jones Lang LaSalle, stated that such measures would significantly increase the probability of reaching the desired growth rate.
Strategic Use of Funds
The anticipated funds are expected to assist local governments in managing off-the-books debts, provide subsidies to low-income households, support the property market, and replenish state bank capital. At the annual parliamentary meeting in March 2024, Premier Li Qiang indicated that ultra-long-term treasury bonds would be issued to fund significant national projects. China's current plans involve issuing 1 trillion yuan in such bonds this year, with expectations for an increase at upcoming legislative meetings.
