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China is considering a massive economic stimulus package
According to insiders, Beijing plans to issue more than 10 trillion in debt. Yuan. Depending on the outcome of the US election, the amount may be adjusted.
The spending plans signal that Beijing wants to provide more economic stimulus.
Image: Na Pian/Bloomberg
According to insiders, China is considering a massive debt-financed economic stimulus package to combat a widespread economic downturn. Accordingly, ten trillion yuan (about 1.3 trillion euros) worth of additional debt over the next few years could be approved next week. The amount is likely to increase further if Republican Donald Trump wins the US presidential election, people familiar with the matter told Reuters behind closed doors. However, they admitted that the plans are yet to be finalised.
The Standing Committee of the National People's Congress (NPC) is likely to be swayed by a fresh set of funds to be raised largely through the issuance of special government bonds on the last day of its meeting scheduled from November 4 to 8. The upcoming meeting was originally scheduled for late October, but was later postponed to early November, one of the insiders said. The timing of the meeting, which coincides with the week of the US presidential election on November 5, gives Beijing more flexibility. This means that the funding package, including the overall amount, can be adjusted depending on the election results.
Trump before Portas?
A possible return of Trump to the White House is a concern for politics and business around the world. The 78-year-old Republican has announced the new tariffs if he wins the Nov. 5 election against Democrat Kamala Harris. Trump has promised a 60% tariff on “everything” from China and a 10-20% tariff on all other imports.
With the fiscal package, Beijing must also protect itself from such risks. The total amount planned to be raised through special government bonds and local government bonds is more than eight percent of the world's second-largest economy's gross domestic product. This is due to the prolonged crisis in the real estate sector and the increasing indebtedness of local governments.
The spending plans signal that Beijing wants to provide more economic stimulus to support the economy. However, it has not matched the firepower of the Chinese “bazooka” since 2008, the year of the global economic crisis. At the time, Beijing put together an economic stimulus package worth four trillion yuan in response to the global financial crisis, equivalent to 13% of GDP at the time.
Measures now being considered include borrowing six trillion yuan over three years, including 2024. The funds should be used primarily to help local governments manage off-the-books credit risks. As part of its latest financing package, the NPC committee is expected to give the green light to four trillion yuan worth of so-called special bonds. All or part of the proceeds can be used to purchase vacant land and real estate within the next five years.
The move aims to improve local governments' ability to manage land supply and reduce liquidity and credit pressures on themselves and real estate developers. Special bonds are a tool for extra-budgetary debt financing for Chinese local governments. The revenue collected is usually earmarked for specific political goals – such as infrastructure spending.
Reuters
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