China's Economic Stimulus and Reform

BEIJING (Reuters) – China's stimulus efforts could come with a cost and must be carried out alongside reforms to ensure sustainable economic growth, said Liu Shijin, a former central bank adviser.

"Stimulus could come with a cost and we should combine stimulus with reforms," Liu stated at a forum on Tuesday, as quoted by Chinese media outlet Yicai. He emphasized that funds should enhance areas critical for long-term economic development.

Liu suggested prioritizing basic healthcare services for the country’s 300 million internal migrant workers amidst a notable public healthcare shortfall.

Reuters reported on Tuesday that China is contemplating new debt issuance exceeding 10 trillion yuan ($1.4 trillion) next week to address hidden local debt, facilitate buybacks of idle land, and mitigate the inventory of unsold flats in coming years.

Analysts believe these efforts will stabilize the economy rather than serve as the instant growth booster that markets desire.

China grapples with a debt overhang from prior stimulus packages. The 4 trillion yuan spending initiative from 2008-2009 shielded the economy from the global financial crisis but left local governments with substantial debt.

Liu mentioned last month that China might issue ultra-long-term treasury bonds within two years to yield at least 10 trillion yuan in stimulus, according to state media.

In July, Chinese leaders outlined reforms covering advanced industries and local government finances, although the speed of implementation remains uncertain.

China aims to expand its middle class from approximately 400 million, one-third of the population, to 800-900 million within the next decade by accelerating urbanization and addressing urban-rural disparities in public services, according to Liu.

However, Liu cautioned against using "helicopter money" or direct cash handouts, arguing that such measures would mainly benefit wealthier residents with low-income groups receiving little relief given their basic needs.

($1 = 7.1231 Chinese yuan renminbi)