China yesterday pledged to “significantly increase” debt to revive its sputtering economy, but left investors guessing on the overall size of the stimulus package, a vital detail to gauge the longevity of its recent stock market rally.
Chinese Minister of Finance Lan Foan (藍佛安) told a news conference that Beijing would help local governments tackle their debt problems, offer subsidies to people with low incomes, support the property market and replenish state banks’ capital, among other measures.
These are all steps investors have been urging China to take as the world’s second-largest economy loses momentum and struggles to overcome deflationary pressures and lift consumer confidence amid a sharp property market downturn.
Photo: AFP
However, Lan’s omission of a dollar figure for the package is likely to prolong investors’ nervous wait for a clearer policy road map until the next meeting of China’s rubber-stamp legislature, which approves extra debt issuance. A date for the meeting has yet to be announced, but it is expected in the coming weeks.
The news conference “was strong on determination, but lacking in numerical details,” said Vasu Menon, managing director for investment strategy at Singapore’s Oversea-Chinese Banking Corp (華僑銀行).
“The big bang fiscal stimulus that investors were hoping for to keep the stock market rally going did not come through,” he said, adding that this might “disappoint some” in the market.
A wide range of economic data in the past few months has missed forecasts, raising concerns among economists and investors that the government’s about 5 percent growth target this year was at risk, and that a longer-term structural slowdown could be in play.
Data for last month, which would be released over the coming week, is expected to show further weakness, but officials have expressed “full confidence” that the target would be met.
Beijing’s planned special bonds are aimed at boosting the capital available to banks — part of a push to get them lending in the hopes of firing up sluggish consumer spending.
China is also preparing to allow local governments to borrow more to fund the acquisition of unused land for development, aimed at pulling the property market out of a prolonged slump.
China still has room “to issue debts and increase the deficit” to fund the new measures, Lan said.
Beijing was “accelerating the use of additional treasury bonds, and ultra-long-term special treasury bonds are also being issued for use,” he said.
“In the next three months, a total of 2.3 trillion yuan [US$325.5 billion] of special bond funds can be arranged for use in various places,” he added.
Additional reporting by AFP
