China Prepares to Unleash Fresh Stimulus Measures
As China’s parliament wraps up its five-day meeting, the country is poised to introduce new stimulus measures to bolster its economy. This move comes on the heels of a series of stimulus announcements since late September, which have fueled a stock market rally.
Fiscal and Monetary Support Take Center Stage
President Xi Jinping has led the charge, calling for strengthened fiscal and monetary support to arrest the real estate market slump. The People’s Bank of China has already cut several interest rates, but major increases in government debt and spending require parliamentary approval.
Approval Expected from National People’s Congress
The National People’s Congress, China’s parliament, is expected to grant approval for increased government debt and spending during its weeklong meeting. Last year, a similar meeting saw authorities approve a rare increase in China’s deficit to 3.8%, up from 3%.
Boosting Fiscal Support
Analysts anticipate an increase in the scale of fiscal support following Donald Trump’s presidential election win, which has raised concerns about harsh tariffs on Chinese goods. However, some remain cautious, warning that Beijing may adopt a conservative approach and avoid direct support to consumers.
Addressing Local Government Debt
Minister of Finance Lan Fo’an has emphasized the need to tackle local government debt problems. To that end, officials have reviewed a plan to increase the limit on local government debt issuance, which would enable them to swap out hidden debt. Nomura estimates that China has $7 trillion to $8.4 trillion in hidden debt, and expects Beijing to allow local authorities to increase debt issuance by $1.4 trillion over the next few years.
Consequences of Real Estate Slump
The real estate market slump has severely impacted local government revenues, while regional authorities have also had to bear the costs of Covid-19 controls. As a result, local Chinese government debt has ballooned to 22% of GDP, far outpacing revenue growth.
Stimulus Measures Ahead
As China prepares to unveil its new stimulus package, all eyes are on the National People’s Congress. Will Beijing take a bold approach to stimulate its economy, or adopt a more cautious stance? One thing is certain – the world will be watching closely.
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