China is considering passing a fiscal stimulus package worth more than 10 trillion yuan (about $1.4 trillion) within the next few years to revitalize its sluggish economy. The National People’s Congress Standing Committee is expected to sanction the fiscal strategy, which includes issuing special bonds worth 6 trillion yuan, sources said. The decision is expected to be made on the last day of the National People’s Congress, scheduled for November 4-8.
The 6 trillion yuan of debt to be raised over three years including 2024 is mainly aimed at helping local governments manage off-balance sheet debt risks. The total amount raised through both special national bonds and local government bonds is equivalent to more than 8% of China’s GDP. The world’s second-largest economy is grappling with a protracted crisis in its real estate sector and rising local government debt.
Stimulus plans have been the subject of speculation in global markets after central banks announced in late September the most aggressive financial support package since the start of the coronavirus pandemic. The government has hinted at additional fiscal stimulus, but has so far not provided financial details.
The officials, who requested anonymity due to the sensitivity of the information, said the plans were not yet final and could change. They also noted that the National People’s Congress, which normally meets every two months, had changed its meeting date from late October to early November. The timing coincides with the U.S. presidential election on November 5, giving China the flexibility to adjust its fiscal policy based on the election results.
Donald Trump’s possible return to the presidency could lead to stronger stimulus from the Chinese government, as his election could worsen China’s economic challenges. Mr. Trump has recently shown increasing support in polls over his Democratic opponent, Vice President Kamala Harris, and has proposed imposing 60% tariffs on imports from China.
Additionally, the National People’s Congress Standing Committee may approve up to 4 trillion yuan in special purpose bonds over five years for the purchase of land and real estate. This is in addition to annual emissions allowances for local governments that fund infrastructure projects, set at 3.9 trillion yuan this year and 3.8 trillion yuan in 2023. This measure aims to improve the capacity of local governments and reduce liquidity and debt pressures. to them and real estate developers.
If the National People’s Congress Standing Committee approves the bond issuance in full, the total amount of economic stimulus could exceed 10 trillion yuan. This reflects the urgency with which China wants to boost its economy, especially after the country issued 1 trillion yuan of sovereign bonds by the end of 2023 for flood prevention infrastructure, achieving an economic growth target of around 5%. is reflected.
However, current fiscal spending remains low compared to the 2008 response to the global financial crisis, when China’s 4 trillion yuan stimulus package accounted for 13% of GDP.
Other stimulus measures worth at least 1 trillion yuan are also being considered as part of the overall fiscal effort, including consumption incentives and capital injections into major state-owned banks through special government bonds.
Reuters contributed to this article.
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