China Poised for Major Fiscal Stimulus: $1.4 Trillion in Special Debt Possible
China is gearing up to boost its economy, with a leading economist suggesting the country could issue as much as 10 trillion yuan ($1.4 trillion) in special debt to ramp up fiscal support. This comes as expectations rise for increased public spending as part of a broader stimulus package aimed at reviving the world’s second-largest economy.
A Call for Confidence
Jia Kang, a former head of a Ministry of Finance research institute, emphasized that substantial government investment in public projects could restore confidence in the economy. “These projects will create jobs, raise incomes, and unleash consumer spending potential,” he explained in an interview with The Paper.
Jia believes that raising bond issuance to between 4 trillion and 10 trillion yuan would be reasonable. This potential increase in spending comes after the Politburo recently encouraged officials to issue ultra-long special sovereign bonds to stimulate investment.
Historical Context
Jia’s proposed debt issuance would dwarf the 1 trillion yuan in ultra-long special bonds planned for this year. He pointed out that this kind of expansion mirrors the 4 trillion yuan stimulus package from 2008, a time when China’s economy was also in need of a boost. “Using public debt effectively won’t overburden the government,” he noted, advocating for long-term bonds with maturities of 30 to 50 years.
Current Economic Climate
Recent reports indicate that the Ministry of Finance plans to issue 2 trillion yuan in special bonds this year. This funding aims to stimulate consumer spending and assist local governments facing debt challenges. According to Becky Liu, head of China macro strategy at Standard Chartered, the focus is more on the government’s willingness to support the economy rather than the sheer amount of funding available.
The market has responded positively to these discussions, with a notable rally in Chinese stocks, particularly in the benchmark CSI 300 Index. However, consumer confidence is still shaky, having hit its lowest level since November 2022.
Looking Ahead
As anticipation builds, many economists believe that a significant fiscal push is necessary to bolster domestic demand. Analysts are watching for upcoming announcements regarding special sovereign bonds or additional funding for local governments.
While there’s optimism about fiscal measures, some caution is warranted. The government faces challenges due to a rising debt-to-GDP ratio, which hit a record 286% earlier this year. Economists from Nomura and Morgan Stanley have suggested that while Beijing is likely to roll out various supportive policies, the scale and content of these measures could be unpredictable.
In summary, as China prepares for possible fiscal expansion, all eyes are on how the government will navigate its economic strategies in the coming months.