China is reportedly considering raising 6 trillion yuan ($850 billion) in new debt over the next three years to stimulate its slowing economy, according to a report by Caixin Global.
The funds are expected to be raised through special treasury bonds and will partially be used to ease the financial burden on local governments, many of which are struggling with hidden debts. This move comes after Chinese Finance Minister Lan Fo’an pledged to significantly increase government debt to support growth, although the lack of specifics has left some investors disappointed.
The proposed debt initiative is part of a broader fiscal package aimed at stabilizing the world’s second-largest economy. However, despite the scale of the plan, Chinese stocks showed a muted response, with the benchmark CSI 300 Index dipping about 0.3% on Tuesday. Analysts suggest that while the measures may help stabilize growth, investor sentiment remains cautious without further clarity on implementation.
The Caixin report highlights the ongoing financial challenges in China, where local governments are saddled with off-balance-sheet debt accumulated through financing vehicles and infrastructure projects. The new debt plan is seen as a way to replace these high-interest loans with official bonds at lower rates, freeing up resources for local governments to spend on salaries, infrastructure, and economic development.
In recent months, China has introduced several monetary and property sector support measures in response to weak economic data, including disappointing trade and lending figures for September. Analysts predict that China’s economic growth will slow to 4.5% in the third quarter, down from 4.7% in the second quarter, before rebounding in the final months of the year. A Reuters poll indicates that China is on track to achieve a 4.8% growth rate for the full year, slightly below its target of around 5%.
The 6 trillion yuan debt figure is equivalent to nearly 5% of China’s total economic output. According to the International Monetary Fund, China’s central government debt currently stands at 24% of GDP, but overall public debt, including local government obligations, amounts to around $16 trillion, or 116% of GDP.
While the debt plan may help local governments address immediate financial pressures, some economists remain concerned about China’s long-term growth prospects. The country’s property sector downturn, youth unemployment, and low consumer spending continue to weigh on economic activity. As a result, China contributes significantly more to the global economy as a producer than as a consumer, a factor that has fueled trade tensions with the US and other markets.
Details of the fiscal package are expected to emerge in the coming weeks during a meeting of China’s top legislative body, the National People’s Congress Standing Committee.
