China’s Ministry of Finance has rolled out a comprehensive fiscal stimulus strategy in a bid to rejuvenate its slowing economy and meet ambitious growth objectives. While specifics regarding the financial scope of these measures were not disclosed, the government indicated plans for a substantial increase in debt issuance.
During a recent press briefing, Finance Minister Lan Foan revealed that the government aims to bolster support for low-income households, stimulate the property sector, and enhance the financial stability of state banks. This announcement follows a series of aggressive monetary policy actions taken by the central bank and regulatory bodies in late September. These measures included significant mortgage rate reductions aimed at revitalizing the struggling real estate market.
Recent reports suggest that China is planning to issue about 2 trillion yuan, approximately $283 billion, in special sovereign bonds this year, as part of this new fiscal initiative.
Among the main strategies unveiled are:
Local Government Debt Management
The government intends to enhance assistance for local authorities to mitigate hidden debt problems, thereby strengthening their ability to foster economic growth. An allocation of 1.2 trillion yuan, or roughly $170 billion, has been designated in local bond quotas for this year. This funding will help address prior debts and settle balances owed to businesses.
China is also working on an extensive debt swap initiative intended to ease the debt burden on local governments, which has been described as one of the most significant recent policy interventions aimed at financial stability. Detailed regulations for this program will be established following the completion of requisite legal steps.
Capital Support for Banks
Further measures include using proceeds from local government bonds to support the housing market and bolster the capital structure of prominent state-owned banks. The issuance of special treasury bonds is planned to strengthen the Tier-1 capital of these banks, enhancing their resilience against financial uncertainties and promoting lending to the broader economy.
Stimulating the Real Estate Sector
Local authorities will be permitted to utilize special bond funds for purchasing vacant land, enabling them to manage land supply more effectively while alleviating the financial strains faced by both local governments and property developers. Moreover, the government plans to facilitate the acquisition of existing residential properties for development as affordable housing and extend its investment in such projects.
To further nurture the housing sector, the government is contemplating tax policies related to residential properties, alongside potential VAT adjustments, to provide additional support for the housing market.
Support for Education and Low-Income Citizens
The administration is set to expand financial aid for individuals from lower-income backgrounds and enhance scholarship provisions for students. National undergraduate scholarships are being doubled, increasing from 60,000 to 120,000 annually, with a hike in the scholarship amount from 8,000 yuan to 10,000 yuan per student annually.
In conclusion, while the Finance Minister did not detail the anticipated increase in debt and budgetary deficits, it is widely understood that there is considerable leeway for the central government to raise direct borrowings. China has set its budget deficit target this year at 3% of GDP, a reduction from a revised 3.8% in the previous year. Moreover, the issuance of 1 trillion yuan in special long-term treasury bonds will be conducted outside of the main budget.
These collective initiatives reflect China’s strategic response to encourage consumption, stabilize the economy, and foster resilience amid challenging economic conditions.