BEIJING: China may raise an additional 6 trillion yuan (US$850 billion) from special treasury bonds over three years to stimulate a sagging economy, local media reported, a figure that failed to revive sentiment in the country’s stock market.
The Caixin Global report, which cited sources with knowledge of the matter, comes after Finance Minister Lan Foan on Saturday said on Beijing will “significantly increase” debt, although the absence of details on the size and timing of the fiscal measures disappointed some investors.
The size of the expected fiscal package has been the subject of intense speculation in financial markets. Chinese shares hit two-year-highs earlier this month on news of the stimulus, before retreating in the absence of official details.
On Tuesday, stocks dipped about 0.3 per cent, suggesting little excitement among investors about the reported amount, although analysts say it would at least stabilise growth in the near-term.
“This is in line with our expectations,” said Xing Zhaopeng, ANZ’s senior China strategist. “For next year, we still think a growth target of around 5 per cent is likely to be maintained. So, for a 5 per cent growth rate, that should be enough.”
Reuters reported last month that China planned to issue special sovereign bonds worth about 2 trillion yuan (US$285 billion) this year as part of fresh fiscal stimulus.
Data in recent months, including Monday’s trade and new lending figures for September, missed expectations, raising concern that China may not reach this year’s roughly 5 per cent growth target and will struggle to fend off deflationary pressures.
In late September, authorities unleashed monetary stimulus and property sector support measures. Soon after, a meeting of top Communist Party leaders, the Politburo, vowed the “necessary spending” to bring growth back on track.
“The probability of reaching a growth rate of about 5 per cent at least in 2024 and 2025 would increase a lot,” Bruce Pang, chief China economist at Jones Lang LaSalle, said of the impact of the reported 6 trillion figure.
The Caixin article published late on Monday said the funds would be partly used to help local governments resolve their off-the-books debts, according to the sources. The reported amount is equivalent to nearly 5 per cent of China’s economic output.
The International Monetary Fund estimates central government debt at 24 per cent of economic output. But the fund calculates overall public debt, including that of local governments, at about US$16 trillion, or 116 per cent of GDP.
“Unless the central government voluntarily increases leverage, investment will remain weak, as local governments are saddled with heavy debt and corporate balance sheets are being eroded by a weak economy,” said Xia Haojie, bond analyst at Guosen Futures.
