China has announced 10tn yuan in debt support for local governments and other economic measures, but stopped short of the “bazooka” stimulus package that many analysts had expected.
The fiscal package included raising debt ceilings for local governments by 6tn yuan (£646bn) over three years, so they could replace hidden debt, which authorities said stood at 14.3tn yuan by the end of 2023.
Hidden debt is borrowing for which a government is liable but is not disclosed to citizens or other creditors, according to the International Monetary Fund.
Authorities said the new measures would cut that debt to 2.3tn yuan by 2028. After the 2008 financial crisis local government in China increasingly used financing vehicles to rack up hidden debt, as many spent big on infrastructure projects, the South China Morning Post reported. But the debts ballooned and, with falling revenues local, governments cut civil servant pay or held back wages, and amassed debts with the private sector, fanning deflationary pressures.
The state broadcaster CCTV described the package as China’s “most powerful debt reduction measure in recent years”, and said it would allow local governments “to better develop the economy and protect people’s livelihood”.
However, Prof Victor Shih, an expert on the politics of Chinese banking and fiscal policies at the University of California San Diego in the US, said the debt relief package did not “come close to resolving the enormous local government debt problem”.
Shih said it was an “accounting exercise” that did not bail out local governments or address the civil servant pay arrears, but instead moved hidden debt on to the books. He added that the claim that hidden debt totalled 14.3tn yuan was “a fiction”, and the true number was likely to be about 50tn yuan or more.
The announcement came at the end of a days long meeting of the National People’s Congress standing committee, the highest lawmaking body in Chinese Communist party. Observers had been expecting bolder measures to promote increased consumer spending and bolster China’s ailing economy. Growth in gross domestic product fell to 4.6% in the third quarter of 2024, short of the 5% target.
The finance minister Lan Fo’an said that more measures were to come, but did not give details.
Beijing had possibly been waiting for the outcome of the US election, as Donald Trump had promised during his campaign to impose large tariffs on Chinese exports.
“Export has been the main engine of economic growth in China for the past four years. So without additional stimulus from the government, I think growth is going to be under pressure, if the US introduces tariffs.”
Wire agencies contributed to this report
