China Considers 10 Trillion Yuan Debt Issuance to Stimulate Economy

(Reuters) – China is contemplating the approval next week of over 10 trillion yuan ($1.4 trillion) in additional debt to boost its fragile economy. This fiscal package could be further enhanced if Donald Trump wins the U.S. election, according to two informed sources.

Legislative Actions

China's top legislative body, the Standing Committee of the National People's Congress (NPC), plans to approve this fiscal package, which includes 6 trillion yuan raised via special sovereign bonds, during a meeting from Nov. 4-8.

The debt will be raised over three years, starting in 2024, primarily to help local governments manage off-the-books debt concerns. The total amount corresponds to over 8% of China's GDP, which is struggling due to a prolonged property sector crisis and local government debt.

This move signifies a shift towards a higher stimulus level, although it falls short of the aggressive measures seen in 2008. The central bank recently announced significant monetary support, followed by hints of fiscal stimulus, fueling speculation in global markets.

Meeting Context

The NPC typically meets every two months, and this gathering, rescheduled to early November, coincides with the U.S. presidential election on Nov. 5. The outcome could impact China's fiscal strategy, especially if Trump wins, as he has pledged to impose high duties on Chinese imports.

Additional Initiatives

In addition to the main fiscal package, the NPC is expected to approve up to 4 trillion yuan in special-purpose bonds for idle land and property acquisitions over the next five years. This will assist local governments beyond their annual quotas, which fund infrastructure projects.

If fully approved, this could raise total stimulus to over 10 trillion yuan. Beijing's urgency to stabilize the economy is highlighted by recent bond issuances intended to meet a 5% growth target, mirroring fiscal strategies deployed during prior economic crises.

Under consideration are further initiatives, including a consumption boost worth at least one trillion yuan and potential capital injections into major state banks with the same amount raised through special treasury bonds.