According to two sources as reported by Reuters, China is contemplating the approval of an additional 10 trillion yuan ($1.4 trillion) in debt issuance in the coming years to stimulate its fragile economy, with expectation to be further reinforced if Donald Trump wins the US election.
The Standing Committee of the National People’s Congress (NPC) is anticipated to greenlight the new fiscal package during a meeting scheduled from November 4-8, intending to partly raise 6 trillion yuan through special sovereign bonds.
This amount is planned to be collected over a three-year period, with a focus on assisting local governments in tackling hidden debt risks.
The proposed total sum, to be raised through special treasury and local government bonds, represents more than 8% of China’s GDP, which has been adversely affected by a prolonged property market crisis and escalating local government debts.
Meanwhile, the sources have warned that the proposals are still in the preliminary stages and are subject to potential revisions.
This potential stimulus package underscores a shift towards more robust economic support by Beijing, although it falls short of the major intervention some investors have been advocating for, akin to the response during the 2008 financial crisis.
The meeting’s timing coincides with the week of the US presidential election on November 5 and gives Beijing the flexibility to adjust the fiscal package’s scale based on the election outcome. The world’s second largest economy could potentially deploy a larger stimulus if Trump secures a second term, as such a scenario is anticipated to pose heightened economic challenges for the country.
