Chinese lawmakers have approved raising the ceiling on local government debt by CNY6 trillion to replace existing hidden debts. The debt ceiling for special local government debt will be increased to CNY35.52 trillion from CNY29.52 trillion by the end of 2024. Also starting from 2024, China will set aside CNY800 billion from each year's new special-purpose bonds for local governments for five consecutive years, thereby providing debt relief to replace CNY4 trillion of hidden debts, according to Minister of Finance Lan Fo'an. The new measures will add a combined CNY10 trillion to China's debt relief. As a result, the amount of hidden debts that China's local governments need to deal with by 2028 is expected to drop from CNY14.3 trillion to CNY2.3 trillion. Due to the statutory debt interest rates being significantly lower than the hidden debt interest rates, it is estimated that the latest arrangements will save local governments CNY600 billion in interest payments on a five-year, accumulative basis, Lan said. “As part of a package of fiscal policy measures to strengthen counter-cyclical adjustments, the new policy will actively contribute to the healthy development of China's economy,” Xi Junyang, Professor at the Shanghai University of Finance and Economics, told the Global Times.
While easing local governments' pressure to dissolve hidden debt risks and reduce their interest expense, the debt swap will ensure that local governments have more fiscal resources to support investment, consumption and sci-tech innovations. There remains considerable room for China's central finance to issue debts and expand the deficit, Lan said, noting that the Ministry is considering potential fiscal policies to strengthen counter-cyclical adjustments. Minister Lan said the Ministry will soon roll out tax policies to support the healthy development of the real estate market, while efforts are also being made to boost the issuance of special treasury bonds to support large state-owned commercial banks in replenishing their core tier-1 capital.
A State Council executive meeting passed measures on promoting the stable growth of foreign trade and stabilizing economic growth. The meeting called for effectively promoting foreign trade growth, ramping up financial support such as expanding the scale of export credit insurance and better tapping policy loans for small and micro foreign trade enterprises to support the sustained and positive growth of the economy. In late September, China's financial authorities announced a broader-than-expected policy package to galvanize the economy's recovery. These policy measures include reducing the reserve requirement ratio (RRR) for banks and mortgage rates for existing homes, as well as introducing new monetary programs to boost the capital market, among other initiatives. Tian Yun, Economist based in Beijing, told the Global Times that the moves highlight the Chinese central government's firm resolve and strong capacity to promote stable economic expansion in the rest of the year, the Global Times reports.
