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BEIJING.- China He committed this Saturday to “significantly increase” the debt to reactivate its slowing economybut left investors with the unknown of the global amount of the stimulus packagea vital detail to gauge the extent of its recent stock market rally.
Finance Minister Lan Foan said at a news conference that Beijing will help local governments solve their debt problems, will offer subsidies for people with low incomes, will support the real estate market and will replenish the capital of state banksamong other measures.
“There are other political tools that are being discussed and are still in the pipeline”Lan said, adding that there is “ample room” in the government budget to raise debt and increase the deficit.
These are announcements that investors have been demanding from China as the world’s second-largest economy loses momentum and struggles to overcome deflationary pressures and boost consumer confidence, amid a sharp decline in the real estate market.
BMW Brilliance Automotive battery factory in Shenyang.BMW – BMW
But Lan’s omission of a yuan (or dollar equivalent) figure for the package is likely to prolong investors’ nervous wait. of a clearer political roadmap until the next meeting of the Chinese legislature, which approves the issuance of additional debt. The date of the meeting has not yet been announced, but it is expected to take place in the coming weeks.
Furthermore, the Chinese regime of President Xi Jinping also plans “issue special government bonds” to “improve the risk resistance and lending capabilities” of state-owned commercial banks, with the aim of “better serving the development of the real economy.”
“The key message is that the central government has the capacity to issue more bonds and increase the fiscal deficit and the central government plans to issue more bonds to help local governments pay off their debt,” estimated Zhiwei Zhang, chief economist at Pinpoint Asset Management.
According to the Bloomberg agency, Economists and strategists estimate that the stimulus package will be between one and three trillion yuan, that is, between 142,000 and 425,000 million dollars. Some added up all the key areas where the economy needed stimulus and the figure rose to ten trillion yuan ($1.42 trillion), or 8% of last year’s Chinese GDP.
The world’s second economy has historically been focused on export markets EXTEND – EXTEND
In recent months, a series of economic data did not meet forecastswhich makes economists and investors fear that the government’s growth target, around 5% for this year, is in danger and that a structural slowdown in the long term.
Global financial markets were speculating intensely with the possibility of new fiscal stimuliafter the September meeting of the top leaders of the Chinese Communist Party (CCP), the Politburo, showed a greater sense of urgency regarding the economy.
Chinese stocks hit two-year highs, rising 25% in the days after the meeting, before backing down out of nervousness due to the lack of further details from officials. Global commodity markets, from iron ore to industrial metals and oil, have also been volatile on hopes that stimulus will boost sluggish Chinese demand.
A cargo ship of the Chinese state shipping company COSCO in the port of Hamburg.THIES RÄTZKE – THIES RÄTZKE
At the end of last September, the Chinese Central Bank announced the most aggressive monetary support measures since the Covid-19 pandemic, including interest rate cuts, a trillion yuan ($142 billion) liquidity injection and other steps to support the real estate and stock markets.
Although the measures lifted market spirits, analysts say Beijing also needs to firmly address deeper structural problemssuch as boosting consumption and reducing its dependence on debt-driven infrastructure investment.
Low wages, high youth unemployment and a weak safety net Social spending means that Chinese household spending represents less than 40% of annual economic output, 20% below the world average. The investment, in comparison, is 20% above.
Chinese authorities have repeatedly promised over the past decade redouble its efforts to boost domestic demand, but they made little progress on this front, which would require a fundamental structural rethinking of many policies and institutions.
Agencies Reuters, AP and AFP
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