China’s Economic Stimulus Package Falls Short of Expectations
In a move aimed at boosting the sluggish economy, China’s top legislative body has approved a bill allowing local governments to issue 6 trillion yuan ($838.8 billion) in bonds to swap for off-balance sheet or “hidden” debt over three years. While this move is seen as a step in the right direction, many investors had been hoping for more measures to stimulate consumer and corporate demand.
A Measured Approach
Finance Minister Lan Foan signaled that further stimulus is in the pipeline, but details remain scarce. Local governments will be able to use an additional 4 trillion yuan in issuance that has already been approved to finance the debt swaps, aimed at reducing systemic financial risks. However, experts believe that China needs more substantial measures to address its economic woes.
Expert Insights
Carlos Casanova, Asia Senior Economist at UBP, Hong Kong, notes that the package falls short of expectations, citing that China needs around 23 trillion yuan, equivalent to 15% of GDP, to effectively address its debt risks. He believes that direct fiscal stimulus aimed at consumption is unlikely to materialize anytime soon.
Lynn Song, Chief Economist for Greater China at ING, Hong Kong, views the moves as in line with expectations, but acknowledges that markets are disappointed. She believes that policymakers will hold back on more significant measures until they have a better understanding of President Trump’s plans.
Impact on the Economy
Xing Zhapeng, Senior China Strategist at ANZ, Shanghai, suggests that the lack of direct fiscal stimulus implies that policymakers are leaving room for the impact of Trump 2.0 later. He predicts that the 2025 GDP target may be downgraded to 4.5%.
Huang Xuefeng, Research Director at Shanghai Anfang Private Fund Co, Shanghai, notes that the package is not huge compared to the fiscal shortfalls due to the economic slowdown and land sales slump.
Positive for Banking Stocks
Dong Baozhen, Chairman of Lingtong Shengtai, Beijing, views the news as very positive for banking stocks, as it removes potential risks clouding the sector. Zhiwei Zhang, Chief Economist at Pinpoint Asset Management, Hong Kong, believes that the debt swap is an important policy measure that helps local governments alleviate their debt burden, and the confirmation of such policy is positive.
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