China Plans Significant Debt Increase to Boost Economy

China has announced, on Saturday, plans to significantly increase its debt in a bid to revive its struggling economy, but did not specify the total amount of the stimulus package, leaving investors uncertain about the sustainability of the recent stock market rally.

Finance Minister Lan Foan stated in a press conference that Beijing will assist local governments in addressing their debt issues, provide subsidies to low-income individuals, support the property market, and bolster the capital of state banks, among other initiatives.

Investors have been advocating for these measures as China, the world’s second-largest economy, grapples with a slowdown, deflationary pressures, and a decline in consumer confidence due to a severe property market slump.

However, Lan’s failure to specify a dollar amount for the economic package is likely to extend investors’ anxious anticipation for a more defined policy direction until the next session of China’s legislature, which is responsible for approving additional debt issuance. The meeting’s date has not yet been set but is anticipated in the coming weeks.

Vasu Menon, managing director for investment strategy at OCBC in Singapore, stated that the press conference “was strong on determination but lacking in numerical details.

“The big bang fiscal stimulus that investors were hoping for to keep the stock market rally going did not come through.”

Recent months have seen a series of economic indicators fall short of expectations, sparking worries among economists and investors. They fear that the government’s approximately 5% growth target for this year may be in jeopardy, and that a more prolonged structural slowdown could be unfolding.

Follow us on: