Chinese lawmakers are poised to approve a new fiscal package for the country. The legislators will hold a week-long session starting on Monday, and the expectation is that they will approve the largest fiscal package the country has seen since 2020 during the global pandemic.
The fiscal package is part of the Chinese government’s efforts to boost the economy and tackle the country’s growing trillion-dollar debt crisis.
China’s fiscal stimulus drive may continue this month
China 🇨🇳 and the Next Bazooka of Economic stimulus
(The Economist Sunday 3rd November 2024 , Hard Paper edition ) pic.twitter.com/c4nfYt5q5v
— zeroleverage (@zeroleverage) November 3, 2024
In October, China’s finance minister, Lan Fo’an, promised the government would issue more debt to recapitalize banking institutions, boost the property market, and help cash-strapped local governments.
While speaking at a briefing in Beijing, the minister told the press that the government would take more steps in the future and highlighted that China still has room to increase its debt and deficit.
Experts and analysts believe China needs to spend up to $1.4 trillion in the next two years to counter deflation and reflate the economy. According to investment bank economists, the stimulus would be 2.5 times more than what China enacted after the global financial crisis of 2008.
The economists said that the stimulus would need to focus on local government debt and directly aim at the household level by promoting social welfare spending rather than investment and infrastructure. Experts believe the Chinese real estate crisis has affected local households and needs to be addressed at these levels as well.
According to a report by Goldman Sachs analysts, China’s move to ease fiscal stimulus is the key to the current stimulus package, highlighting the current week’s NPC meeting.
In late October, China’s President Xi Jinping led the country’s top leaders in a desperate high-level meeting to halt the property crisis. According to China’s state media publication, the meeting emphasized that authorities must mitigate the decline of the real estate market and initiate a stable recovery.
China slashes benchmark interest rates by 25 basis points
China’s economic stimulus started in September, when the government unleashed a swath of policy measures, including slashing benchmark interest rates by 25 basis points. The central bank also announced that it had cut the five-year loan prime rate (LPR), which is the benchmark for mortgage rates, from 3.85% to 3.6%.
PBOC also reduced the one-year loan prime rate, which affects corporate loans and most household loans in China, to 3.1% from 3.35%. The Chinese central bank, the People’s Bank of China, announced that the government would fund the stock market and facilitate share buybacks on companies.
The policies sparked a wave of excitement in the country’s stock market. China’s stock market gained 16% in five days after surging by 4% on September 30th. Domestic A shares led the pack with the highest-ever turnover amid the policy-driven investor frenzy.
According to economists, China’s slow GDP growth rate fell below the annual target of 5% for the second quarter in a row, sparking concerns among Chinese leaders. Although investors welcomed the policies, market excitement has since dwindled due to the slow release of details on the fiscal spending package by Chinese officials.
