China will combat economic downturn by incurring fresh debt amounting to 774 billion euros.
Over the weekend, Beijing declared a stimulus package, and now the scope of the assistance is coming to light. As per matching reports, it'll amount to roughly €750 billion - funded through new borrowing.
According to various sources, China might be contemplating releasing special government bonds to fund economic recovery. Over a span of three years, this could imply borrowing an extra 6 trillion yuan (approximately €774 billion). These claims stem from several local news outlets following Minister Lan Foan's weekend announcement of Beijing's decision to "significantly increase" its debt.
The government intends to utilize this stimulus package to help low-income individuals, strengthen the ailing property market, and replenish the reserves of state-owned banks. It also aims to assist regional governments in addressing their debt concerns.
Since the COVID-19 crisis, China's economy hasn't rebounded as anticipated. To spur growth, Beijing disclosed their largest stimulus package since the pandemic in late September. Nevertheless, stock market experts were underwhelmed by the announced scale of debt issuance, leading to a decline of roughly 0.3% in major indices.
Analyst Xing Zhaopeng from ANZ bank voiced, "This is in line with our expectations." He anticipates the government to set a 5% growth target for the next year and thinks the probability of achieving a growth rate around 5% in 2024 and 2025 will significantly increase.
However, a survey by Reuters of 75 economists suggests the target might not be met; they estimate growth of 4.8% this year, decreasing to 4.5% by 2025.
The IMF estimates the central government's debt to make up 24% of GDP. But, it estimates the overall public debt, including that of regional governments, to be close to $16 trillion or 116% of GDP. "As long as the central government avoids voluntarily increasing its debt, investment will remain modest, as regional governments are heavily indebted, and corporate balance sheets are drained due to the weak economy," said analyst Xia Haojie from Guosen Futures.
China's plans to issue special government bonds could involve borrowing an extra 6 trillion yuan, equivalent to approximately €774 billion. This potential move by China follows the announcement made by Minister Lan Foan, signaling Beijing's intent to significantly increase its debt to support economic recovery.
