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China has announced a Rmb10tn ($1.4tn) fiscal package to help shore up its faltering economy, as it braces for increased trade tensions with the US under Donald Trump.
Beijing has authorised China’s heavily indebted local governments to issue Rmb6tn in new bonds over three years and reallocate a further Rmb4tn in previously planned bonds over five years to restructure their finances, officials announced at a press conference on Friday presided over by finance minister Lan Fo’an.
Officials did not announce additional measures to directly stimulate domestic demand, potentially disappointing markets that had been hoping the package would also help consumers. But they added that they were “studying” extra measures to recapitalise big banks, buy unfinished properties and strengthen consumption.
China’s renminbi weakened sharply against the US dollar immediately after the announcement, with the onshore yuan falling as much as 0.4 per cent to less than Rmb7.17 to the dollar.
The country’s central bank on Thursday set its daily fix for the currency at its lowest level since last November, at Rmb7.166, as the dollar surged following Donald Trump’s victory in the US presidential election.
The debt relief measures, which follow the announcement of a large monetary stimulus in September, had been expected even before Trump’s victory, following a campaign in which he threatened to levy a 60 per cent tariff on Chinese goods.
But analysts say China needs to urgently deal with problems dogging its domestic economy, including a prolonged housing slump that has dented household and local government revenues, before Trump’s tariffs hit its external sector.
If fully implemented without Chinese countermeasures, the Trump tariffs could knock several percentage points off China’s GDP at a moment when the economy is highly vulnerable, analysts said.
China’s manufacturing industries and exports have been a rare bright spot for its economy this year, offsetting domestic weakness and helping Beijing come closer to hitting its growth targets.
Beijing is expected to announce additional support for the economy once Trump’s agenda becomes clearer in the coming months, analysts said.
There are signs the government’s monetary stimulus measures in September, which included interest rate cuts and support for the stock and property markets, have started to have an impact on the economy.
The government has also accelerated pre-planned bond issuances for fiscal spending that had stalled during the year.
“There have been some early signs of a pick-up in domestic demand,” Gavekal China economist Wei He wrote in a note, pointing to indicators such as the October purchasing managers’ index.
“Housing sales are improving, the official PMI is rebounding and stock prices have made handsome gains,” Wei added.
Additional reporting by Arjun Neil Alim in Hong Kong