BEIJING: China said on Saturday (Oct 12) that it will “significantly increase” government debt issuance to offer subsidies to people with low incomes, support the property market and replenish state banks’ capital as it pushes to revive sputtering economic growth.
Without providing details on the size of the fiscal stimulus being prepared, Finance Minister Lan Foan told a news conference there will be more “counter-cyclical measures” this year.
“There is still relatively big room for China to issue debt,” said Lan.
The world’s second-largest economy faces strong deflationary pressures due to a sharp property market downturn and frail consumer confidence, which have exposed its over-reliance on exports in an increasingly tense global trade environment.
A wide range of economic data in recent months has missed forecasts, raising concerns among economists and investors that the government’s roughly 5 per cent growth target this year was at risk and that a longer-term structural slowdown could be in play.
Data for September, which will be released over the coming week, is expected to show further weakness, but Zheng Shanjie, the chairman of the National Development and Reform Commission, China’s state planner, said he was “fully confident” that the target will be met.
Fiscal stimulus measures in China have been the subject of intense speculation in global financial markets after a September meeting of the Communist Party’s top leaders, the Politburo, signalled an increased sense of urgency about mounting economic headwinds.
Chinese stocks reached two-year highs, spiking 25 per cent within days since that meeting, before retreating as nerves set in given the absence of further details on the government’s additional spending plans.
Reuters reported last month that China plans to issue special sovereign bonds worth about 2 trillion yuan (US$284 billion) this year as part of fresh fiscal stimulus.
Half of that would be used to help local governments tackle their debt problems, while the other half will subsidise purchases of home appliances and other goods as well as finance a monthly allowance of about 800 yuan, or US$114, per child to all households with two or more children.
Separately, Bloomberg News reported that China is also considering injecting up to 1 trillion yuan of capital into its biggest state banks to increase their capacity to support the economy, primarily by issuing new sovereign bonds.
Additional debt issuance in China is typically subject to formal approval by its parliament, which is expected to meet in the coming weeks.
