By Kevin Yao and Joe Cash
BEIJING (Reuters) -China said on Saturday it will “significantly increase” its issuance of government bonds to provide subsidies to low-income earners, support the real estate market and replenish the capital of state banks as the country tries to revive sputtering economic growth to breathe new life into.
Without giving details on the size of the fiscal stimulus measures being prepared, Finance Minister Lan Foan told a news conference that there will be more “countercyclical measures” this year.
“There is still relatively much room for China to issue debt,” Lan said.
The world’s second-largest economy is facing strong deflationary pressures from a sharp downturn in the real estate market and weak consumer confidence, which have exposed its over-reliance on exports in an increasingly tense global trade environment.
A wide range of economic data in recent months has fallen short of forecasts, leaving economists and investors concerned that the government’s growth target of roughly 5% this year was at risk and that a longer-term structural slowdown is at play could be.
September figures, due to be released next week, are expected to show further weakness, but Zheng Shanjie, the chairman of the National Development and Reform Commission (NDRC), China’s state planner, said he was “confident” had in mind that the goal will be achieved.
Fiscal stimulus in China has been the subject of intense speculation in global financial markets after a September meeting of the top leaders of the Communist Party’s Politburo signaled an increased sense of urgency over mounting economic headwinds.
Chinese shares hit their highest level in two years, rising 25% within days of that meeting before retreating as nerves rose over the lack of further details on the government’s additional spending plans.
Reuters reported last month that China plans to issue special government bonds worth about 2 trillion yuan ($284.43 billion) this year as part of new fiscal stimulus.
Half of that would be used to help local governments tackle their debt problems, while the other half will subsidize the purchase of household appliances and other goods and finance a monthly allowance of about 800 yuan (or $114) per child for all households with two children. or more children.
In addition, Bloomberg News reported that China is also considering injecting up to 1 trillion yuan of capital into its largest state-owned banks to boost their capacity to support the economy, mainly through the issuance of new government bonds.
Additional debt issuances in China are generally subject to formal approval by China’s parliament, which is expected to convene in the coming weeks.
STIMULUS STEP UP
The central bank announced in late September the most aggressive monetary support measures for the economy since the COVID-19 pandemic, including numerous steps to help lift the real estate sector out of a multi-year slump, including mortgage rate cuts.
While the measures have sent Chinese stock prices soaring, many analysts say Beijing must also tackle deeper structural problems, such as boosting consumption and reducing dependence on debt-fueled infrastructure investment.
The bulk of China’s fiscal stimulus still goes to investment, but returns are declining and spending has saddled local governments with $13 trillion in debt.
Lan said Beijing will support local governments to solve their debt problems, adding that they still have a combined 2.3 trillion yuan ($325.5 billion) to spend in the last three months of this year, including debt quotas and unused funds.
Local governments will be allowed to buy back unused land from developers, Lan said.
Low wages, high youth unemployment and a weak social safety net mean that Chinese household spending amounts to less than 40% of annual economic output, about 20 percentage points below the global average. By comparison: investments are 20 points higher.
A private report from recruitment platform Zhaopin shows that the average pay offered by recruiters in 38 major Chinese cities fell 2.5% in the third quarter compared to the second quarter.
Swedish furniture retailer IKEA, whose 39 stores in China have felt the impact of the property crisis, urged Beijing on Thursday to deploy further stimulus measures.
(Reporting by Joe Cash, Kevin Yao and Ellen Zhang; Writing by Eduardo Baptista and Marius Zaharia; Editing by Kim Coghill)