On Friday, China announced a significant 10 trillion yuan (S$2.1 trillion) stimulus package aimed at addressing the country’s growing public debt burden. The measures, approved at the end of the week-long session of the Standing Committee of the National People’s Congress, include raising debt ceilings by 6 trillion yuan over the next three years to help local governments swap hidden debts for higher interest with new bonds at lower rates. An additional 4 trillion yuan in special bonds will be issued over five years to further reduce debt levels.
Finance Minister Lan Fo’an explained that these measures are expected to reduce local government debt from 14.3 trillion yuan to 2.3 trillion yuan by 2028 and save about 600 billion yuan in interest payments in five years. Lan also emphasized a “zero tolerance” policy for new hidden debts, seeking to stabilize the finances of local governments that are under pressure from the 2008 financial crisis and exacerbated by COVID-19.
Despite the ambitious scope of the package, the market response has been mixed. Investors expressed disappointment at the lack of immediate measures to revive consumer spending and the absence of substantial stimulus for the real estate sector, which remains in a prolonged recession. Chinese stocks, particularly those related to real estate and infrastructure, saw declines following the announcement, with FTSE China A50 index futures falling more than 2%.
While some analysts have welcomed the debt restructuring as a move that frees up fiscal space for potential future investments, others have criticized it as a mere “accounting exercise” that fails to address deeper economic issues. “China’s housing crisis and weak consumer demand require more direct action,” noted economist Stephen Innes of SPI Asset Management.
Looking ahead, December’s Central Economic Work Conference could reveal more comprehensive fiscal plans, especially as China braces for potential economic headwinds, including a possible trade conflict with the United States under the administration of President Donald Trump.