2024-10-12 05:33:00
A massive injection of public money to revive the Chinese economy. Beijing announced on Saturday October 12 the issue of nearly 300 billion euros in special bonds to boost growth, targeting in particular the real estate and banking sectors. These announcements come on top of a series of measures decided in recent weeks, including interest rate cuts and the provision of liquidity to banks.
In 2023, China experienced one of its lowest growth rates in three decades (5.2%), according to an official figure which leaves some economists doubtful, given the difficulties weighing on activity. This rate would make many Western countries dream, but for China it remains far from the dazzling expansion that has propelled it to the heights of the world economy in recent decades.
At a press conference on Saturday, Finance Minister Lan Fo’an said Beijing was “accelerating the use of additional treasury bonds.” “Over the next three months, a total of 2.3 trillion yuan (296.84 billion euros) of special bonds can be used,” he said.
The minister specified that Beijing also planned to “issue special state bonds to support large public commercial banks”, without specifying the amount. The funds will help them “replenish their capital”, improve “their lending capacities and better serve the development of the economy”.
Beijing will also raise the debt ceiling for local authorities to allow them to spend more. Vice Finance Minister Liao Min said local governments would receive special bonds allowing them to acquire unused or fallow land, which could boost the real estate market.
China will also encourage the acquisition of existing commercial properties to turn them into affordable housing. The main Chinese banks will also lower interest rates on most existing property loans from October 25, in accordance with a request from the Central Bank, state channel CCTV announced on Saturday, which specified that the The adjustment would be automatic, with customers “not needing to request it”.
Also readEvergrande, Stock Market: nothing is going well in China?
Towards a budget deficit of more than 3%?
Julian Evans-Pritchard, analyst at Capital Economics, regretted the absence of “any mention of large-scale aid to consumers”. “The key messages” are that the government has “the capacity to issue more bonds and increase the budget deficit,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“These policies are going in the right direction,” he noted. Although Lan Fo’an did not say it explicitly, “I think his comments imply the possibility that the government will increase the budget deficit above 3% next year.” According to Zhiwei Zhang, such a measure would represent a “significant change” and would help “stimulate domestic demand and alleviate deflationary pressure.”
Debt of local authorities
The world’s second-largest economy faces a crisis in its real estate sector, chronically weak consumption and high youth unemployment. Its economy has struggled to restart since the lifting, at the end of 2022, of the draconian measures it had imposed to fight the Covid-19 pandemic.
After sparse announcements in recent months with no apparent effect, analysts are expecting a “bazooka” recovery plan from the government.
The housing and construction sector has long represented more than a quarter of the GDP of the Chinese economy. But since 2020 it has been affected by Beijing’s tightening of conditions of access to credit for real estate developers, which has pushed some – including the juggernaut Evergrande – to the brink of bankruptcy, while the decline in prices deters residents from ‘invest.
This real estate crisis deprives local authorities of an important source of property income and their debt has now reached more than 5,000 billion euros, according to the central government, a source of concern for the stability of the economy.
In addition to the country’s internal difficulties, geopolitical tensions with the United States and the European Union threaten its foreign trade. The EU recently imposed additional surcharges on electric vehicles manufactured in China, deeming their prices artificially low due to state subsidies.
The authorities still expect growth of around 5% this year, but analysts consider this objective optimistic.
1730728492
#China #issues #billion #euros #bonds #revive #growth
**Interview with Dr. Mei Chen, Economist and China Policy Expert**
**Interviewer:** Good morning, Dr. Chen. Thank you for joining us today. China’s recent announcement of nearly 300 billion euros in special bonds to revitalize its economy has certainly caught attention. What do you think are the most significant implications of this move?
**Dr. Chen:** Good morning, and thank you for having me. The issuance of these special bonds is a clear signal that Beijing recognizes the urgent need to stimulate growth, especially in sectors such as real estate and banking that are currently under pressure. By injecting this capital, the government aims to restore confidence among investors and consumers and address some of the underlying economic challenges.
**Interviewer:** Indeed. It’s notable that these measures come after China recorded one of its lowest growth rates in decades. How does this new fiscal stimulus package compare to previous ones, like the massive 4-trillion-yuan stimulus in 2008?
**Dr. Chen:** That’s a great question. The 2008 stimulus was primarily a response to the global financial crisis, whereas today’s measures are more tailored to domestic challenges, including real estate market instability and consumer demand weakness. While there is a sense of urgency now, the scale and focus on targeted industries reflect a more cautious approach by the government. They seem to be learning from past experiences.
**Interviewer:** You mentioned real estate—what actions is the government taking specifically to support this sector?
**Dr. Chen:** The authorities are planning to allow local governments to use special bonds to acquire unused land, which should help stimulate the real estate market by flipping these lands into productive use. Additionally, by encouraging banks to lower interest rates on property loans, they aim to make housing more affordable, which could help revive demand.
**Interviewer:** Some analysts, like Julian Evans-Pritchard, express concern over the lack of substantial aid to consumers. Do you think the government might need to address this in the future?
**Dr. Chen:** Absolutely. While the current focus is on boosting infrastructure and supporting banks, consumer spending is crucial for sustained growth. Without boosting household confidence and disposable income through direct support measures, there’s a risk that these financial injections may not translate into increased economic activity. I expect that if growth does not pick up as hoped, we could see more consumer-targeted initiatives.
**Interviewer:** what might increasing the budget deficit above 3% indicate for China’s fiscal policy moving forward?
**Dr. Chen:** If the government does increase the budget deficit beyond that threshold, it would signify a significant shift in their fiscal policies—essentially moving towards a more expansionary stance. This could provide immediate relief and investment but could also raise long-term concerns about sovereign debt sustainability. Balancing these interests will be crucial for the country’s economic stability.
**Interviewer:** Thank you, Dr. Chen, for your insights. The future of China’s economy is certainly an important subject to follow as developments unfold.
**Dr. Chen:** Thank you for having me. I look forward to seeing how these policies are implemented and their impact on both the domestic and global economy.
