China's $1.4 trillion lifeline: Real estate crisis response
China is preparing a fiscal package worth over 10 trillion yuan to support its economy amidst challenges related to local government debt and the real estate crisis. The decision is expected to be made in November, and its size may depend on the outcome of the elections in the US, according to Reuters.
China is considering launching a massive fiscal package valued at over 10 trillion yuan (about 1.4 trillion dollars) to support its weakened economy. Sources indicate that the Standing Committee of the National People's Congress (NPC) is considering approving the plan during a meeting scheduled for November 4–8.
The package includes the issuance of special treasury bonds to raise a portion of the necessary funds. The proposed measures would primarily be allocated to support local governments in managing hidden debts and financial issues.
A package valued at 8% of China's GDP
According to the plan, 6 trillion yuan is expected to be raised over the next three years, starting in 2024. The total value of the proposed package represents more than 8% of China's GDP, the world's second-largest economy, which is currently struggling with a real estate market crisis and increasing local government debt.
Reuters confirmed that Chinese authorities are seriously considering approving a stimulus package of such magnitude. This decision reflects Beijing's inclination to introduce substantial fiscal support, although not on the same scale as in 2008, in response to the global financial crisis. The Chinese central bank already announced the most significant monetary support since the COVID-19 pandemic in September.
Sources familiar with the matter, due to confidentiality, note that the plans may still change. The priorities are managing hidden local government debt, ensuring financial system stability, and supporting domestic demand, indicated Tommy Xie, head of China research at OCBC Bank, as reported by Reuters.
According to the NPC's agenda for 2024, the November session was initially scheduled for late October. The shift to the first week of November allows Beijing to adjust its fiscal strategy to the situation after the US presidential elections, which will take place on November 5.
Impact of the US elections on Beijing's decision
Reuters reports that China may increase the fiscal package if Trump wins the election, which could signal a rise in economic tensions. The Republican candidate has announced imposing 60-percent tariffs on imports from China, and his polling numbers have recently increased.
As part of the fiscal package, the NPC is also expected to approve the issuance of special-purpose bonds worth up to 4 trillion yuan for the purchase of land and real estate. Local authorities will be able to access these funds in addition to the usual annual limit, which primarily finances infrastructure and was 3.9 trillion yuan in 2023. This initiative aims to strengthen the financial liquidity of local governments and relieve pressure on real estate developers.
The fiscal package may also include initiatives to stimulate consumption, such as subsidies for replacing household products and equipment, and an additional 1 trillion yuan in special treasury bonds to support the capital of the largest state banks.
"Significant fiscal stimulus should boost confidence and support economic growth," remarked Louis Kuijs, chief Asia economist at S&P Global in Hong Kong. However, he added that the scale of consumer support is still moderate, meaning that economic recovery may be limited and the risk of deflation not entirely eliminated.
