On Friday, China announced a significant 10 trillion yuan (A$2.1 trillion) stimulus package aimed at addressing its growing local government debt burden. The measures, approved at the conclusion of the National People’s Congress Standing Committee week-long session include raising debt ceilings by 6 trillion yuan over the next three years to help local governments swap higher-interest hidden debts for 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 moves are expected to reduce local government debt from 14.3 trillion yuan to 2.3 trillion yuan by 2028 and save approximately 600 billion yuan in interest payments over five years. Lan also emphasised a “zero tolerance” policy for new hidden debts, seeking to stabilise the finances of local governments that have been under strain since the 2008 financial crisis and exacerbated by COVID-19.
Despite the ambitious scale of the package, market response has been mixed. Investors expressed disappointment over the lack of immediate measures to boost consumer spending and the absence of a substantial stimulus for the property sector, which remains in a prolonged downturn. Chinese stocks, particularly property and infrastructure-related shares, experienced declines following the announcement, with the FTSE China A50 Index Futures dropping over 2%.
While some analysts welcomed the debt restructuring as a move that frees up fiscal space for potential future investments, others criticised it as merely an “accounting exercise” that fails to address deeper economic issues. “China’s property crisis and weak consumer demand require more direct action,” noted economist Stephen Innes of SPI Asset Management.
Looking ahead, the Central Economic Work Conference in December may reveal more comprehensive fiscal plans, particularly as China braces for potential economic headwinds, including a possible trade conflict with the US under President Donald Trump’s administration.
