China has announced a huge £1.1 trillion ($1.4 trillion) fiscal package to help struggling local governments and support its weakening economy.
However, the move comes amid worries over potential trade tensions with the US under Donald Trump’s presidency.
The financial package was revealed earlier today (Friday) by the National People’s Congress and will allow local governments to issue new bonds to manage their rising debt over the next three to five years.
Finance Minister Lan Fo’an said the move was aimed at restructuring “hidden” debts and providing much-needed relief to local authorities weighed down by years of costly investments in infrastructure and real estate.
Lan explained that China’s local governments would be authorised to issue ¥6 trillion (£660 billion) in new bonds over three years, with an additional ¥4 trillion (£440 billion) from previously planned bonds reallocated over five years.
These bonds will help local governments to transfer debt from off-balance-sheet finance vehicles onto their official balance sheets.
This move, according to the Financial Times, could reduce overall financing costs and save ¥600 billion (£66 billion) in total.
Lan added that once the bond swap programme is completed, “hidden debts” would decrease to about ¥2.3 trillion (£253 billion). He said this would allow local governments to redirect their spending toward “development and public welfare improvement.”
However, despite the scale of the bailout, some investors were left disappointed by the lack of measures to stimulate household consumption.
Mitul Kotecha, the head of emerging market macro strategy for Asia at Barclays, said: “There is a sense of disappointment in markets – yields are lower and the yuan is weaker.”
The renminbi fell 0.3 percent following the announcement, reaching its lowest level in a year at ¥7.16 to the dollar.
The announcement also comes as China braces for possible increased trade tensions with the US.
Donald Trump has previously threatened tariffs on Chinese goods, raising concerns about their impact on China’s economy.
Analysts warn that these potential tariffs, if implemented, could hit China’s GDP hard, particularly as the country grapples with a slowing property market and weakened domestic demand.
Lan said officials were “studying” additional measures to boost the economy, which could include recapitalising large banks and purchasing unfinished properties to stabilise the housing market.
“We are planning the next phase of fiscal policy and are intensifying countercyclical adjustments,” he explained.
China’s central bank has already introduced a monetary stimulus package, including interest rate cuts, to help boost growth.
Some early signs of improvement have appeared, with housing sales showing signs of recovery and stock prices rising.
