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China said on Saturday it would issue more debt to stimulate the property market, recapitalize banks and help cash-strapped local governments, as Beijing tries to reassure investors about its efforts to revive the economy.
Announcing the measures at a briefing in Beijing, Finance Minister Lan Fo’an gave few details on the amount of financing but suggested the government is planning more stimulus measures to support growth.
“Our countercyclical adjustment goes far beyond what I mentioned,” Lan told reporters, adding that more steps were under discussion. “The central government has considerable scope when it comes to increasing the deficit and increasing debt.”
Markets are awaiting signs that Beijing will increase fiscal spending to support monetary stimulus plans, amid lingering doubts about the strength of the world’s second-largest economy.
China’s stock markets tumbled this week after state planners held a press conference on the economy but gave no details on stronger budget support.
Lan said Beijing would issue bonds to allow local governments to buy back unused land from developers, as well as some of China’s millions of unsold new homes. The government will also issue a special bond to help big banks replenish their capital, which would boost their ability to lend.
Beijing would also provide more aid to groups such as students and low-income people, Lan said.
The Ministry of Finance cannot announce specific amounts of additional fiscal stimulus until it has been approved by the Chinese parliament, the National People’s Congress. The next standing committee is expected in the coming weeks.
The government’s stimulus efforts follow declining household and stock market confidence due to a prolonged slowdown in the real estate sector and the state’s crackdown on sectors such as e-commerce and finance.
After months of incremental measures to support weak domestic demand, Beijing suddenly changed course in late September, with the central bank launching China’s biggest monetary stimulus since the pandemic.
The measures, which included extended support for the stock and real estate markets, caused the CSI 300 index to rise 24 percent just before a week-long holiday. But markets tumbled again upon reopening this week after disappointment with state planners’ briefing.
Alicia García-Herrero, chief Asia-Pacific economist at Natixis, said it was difficult to understand why Beijing did not act more forcefully or provide more clarity on its spending plans. “I don’t think this will improve the market tremendously,” she said after Lan spoke Saturday.
The Ministry of Finance’s policies to reduce local government debt and stabilize the property market were healthy from a macroeconomic perspective, but the market was looking for more, said Raymond Yeung, chief economist for Greater China at ANZ .
“I think the market will be disappointed,” Yeung said. “Everyone was looking for a number, but the finance minister didn’t give us one.”
He said the ministry could have offered a proposed expenditure figure to be confirmed by the NPC.
Heron Lim, an economist at Moody’s Analytics, said bailing out local governments would help them increase spending to boost the economy.
But without figures on the central government’s stimulus package, investors could “take a step back until they are absolutely sure of the direction of budget support,” he said.
However, Andy Rothman, investment strategist at the Matthews Asia fund, said the series of press conferences by economic planners indicated a “fundamental shift” in the economy by Chinese leader Xi Jinping.
“Xi understands that the policy response must be significant if consumer and business confidence is to be restored. . . It will take time [but] a reversal in confidence is likely on the horizon,” Rothman said.
Lan said one of the most important new expenditures would be to ease the debt burden of local governments. Many relied heavily on real estate and related industries for their income.
“This upcoming policy will be one of the largest in recent years in tackling debt risks,” Lan said, adding that it would boost confidence by helping local governments pay salaries and other bills.
Economists estimated that China will need to spend up to Rmb10 trillion ($1.4 trillion) on additional stimulus over two years to restart the economy, adding that much of that needed to be targeted at households to boost domestic support demand.
