China is weighing a bold fiscal plan involving over 10 trillion yuan ($1.4 trillion) in additional debt to stabilize its economy, according to sources cited by Reuters. This plan, which could see approval next week, aims to strengthen local government finances, boost infrastructure, and help alleviate mounting property sector debt, especially if a U.S. election win by Donald Trump introduces further economic challenges.
Planned Fiscal Package and Debt Allocation
The Standing Committee of China’s National People’s Congress (NPC) is reportedly set to authorize 6 trillion yuan in debt issuance, spanning three years and financed partly through special sovereign bonds. This debt—over 8% of China’s economic output—is targeted at reducing hidden debt risks of local governments and shoring up stability amid property sector struggles and local government debt burdens.
The 10-trillion-yuan plan is more extensive than initially forecast, hinting at a shift to a higher stimulus level. This spending is substantial but falls short of China’s 2008 stimulus response, which amounted to 13% of GDP. Despite recent monetary easing and some fiscal stimulus, this proposal aims to address what economists see as a structural economic slowdown and rising deflation risks.
Possible Adjustments Based on U.S. Election Results
The NPC’s meeting, rescheduled to Nov. 4-8, coincides with the U.S. presidential election week. According to sources, Beijing may increase the fiscal package if Trump returns to office, as his administration’s trade policies have previously pressured Chinese trade. Trump, who has recently surged in polls against Kamala Harris, has pledged to impose tariffs as high as 60% on Chinese imports, a move that could accelerate headwinds for China’s economy.
Property and Local Government Debt Relief Measures
The NPC Standing Committee’s agenda also includes authorizing up to 4 trillion yuan in special-purpose bonds over the next five years for land and property investments. These bonds, outside the regular issuance quota, would address liquidity issues in local governments and aid distressed property developers. In 2024, China raised 1 trillion yuan in sovereign debt for flood prevention and economic growth support.
Market and Analyst Reactions
News of the proposed fiscal measures has sparked discussions among economists and analysts. Tommy Xie, head of Greater China Research at OCBC Bank, emphasized that the focus is on reducing local government debt and promoting financial stability before expanding domestic demand. Louis Kumis, Chief Asia Economist at S&P Global, noted that while this fiscal support could boost confidence, it may not significantly alter China’s economic trajectory or fully counteract deflation concerns.
As discussions advance, global markets are watching closely to assess how China’s stimulus plan, contingent upon both domestic and international factors, could impact economic growth in the coming years.
