
China’s Massive Debt Package: Will 10 Trillion Yuan Revive the Economy?
China’s consideration to issue a substantial debt package of 10 trillion yuan to address its economic slowdown has stirred both hope and skepticism among economists worldwide. In the wake of Reuters' report, experts are weighing the prospects of this fiscal intervention amid long-standing issues like high local government debt and weak domestic demand. With the package primarily directed at local debt management and property market support, the impact on direct economic growth may not be as expansive as anticipated.
China’s local governments have faced financial constraints with high hidden debts, and economists like Tommy Xie from OCBC stress the importance of restructuring to avoid default risks. Xie asserts that converting these hidden liabilities into formal debts, while necessary, may not immediately free up spending capacity for local governments. The plan’s focus on financial stability over aggressive stimulus, he suggests, could moderate its influence on broader economic indicators.
Gary Ng, a senior economist at Natixis, notes that the size of the stimulus aligns with expectations but could act as a temporary relief rather than a long-term economic driver. Supporting the property market, a sector with vast unoccupied inventory, may provide confidence but not necessarily drive consumption. Alvin Tan from RBC Capital adds that large debt swaps may stabilize local finances but might not trickle down to lift domestic demand substantially.
China’s conservative approach signals a shift from prior large-scale stimulus efforts targeting infrastructure. The current plan may serve as a protective measure against potential economic risks without spurring immediate growth. As the policy framework advances, the focus on sustainable, incremental improvement reflects China’s caution amidst global economic uncertainties and its intent to foster stable, if modest, progress.
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