BEIJING (Reuters) – China’s Finance Ministry on Saturday unveiled a fiscal stimulus package aimed at reviving the faltering economy and achieving the growth target set by the government, but did not reveal the size of the new measures.
The ministry said in a press conference that it would “significantly” increase government debt issuance to provide support to low-income families, support the real estate market, and replenish state banks’ capital as part of efforts to stimulate economic growth.
The long-awaited briefing comes after the central bank and other regulators in late September announced the most aggressive monetary stimulus measures since Covid-19, including steps to revive the faltering real estate market such as mortgage interest rate cuts.
Reuters reported last month that China plans to issue special sovereign bonds worth about 2 trillion yuan ($283.02 billion) this year as part of the new fiscal stimulus.
Below are the main measures announced by Finance Minister Lan Fuan, at a press conference, where he was joined by Deputy Finance Ministers Liao Min, Wang Dongui and Guo Tingting.
Local debt settlement
China will increase its support for local governments to address hidden debt risks and enhance their ability to support the economy. The government has allocated 1.2 trillion yuan ($169.81 billion) in local bond shares this year to help resolve existing hidden debts and settle government arrears owed to companies.
China is planning a large-scale debt swap programme, along with continuing to use bond stakes to settle debt, which is described as the “largest” policy measure in recent years. Detailed policies will be announced after completing the necessary legal procedures.
Bank recapitalization
China intends to expand the use of local government bond proceeds to support the real estate market and recapitalize large state-owned banks. Special treasury bonds will be issued to enhance the Tier 1 core capital of major state-owned commercial banks, improving their ability to bear risks and provide credit to the real economy.
Support the real estate market
It will allow local governments to use special bonds to purchase unused land, enhancing their ability to manage land supply and relieving liquidity and debt pressures on both local governments and real estate developers.
China will also support the purchase of existing commercial housing for use as affordable housing and will continue to fund affordable housing projects.
The government is studying policies related to value-added taxes related to residential real estate, and is also studying other tax policies to support the real estate market.
Supporting low-income families and students
The government will work to increase support for low-income individuals and students to boost consumption. The number of national scholarships for undergraduate students will be doubled from 60,000 to 120,000 per year, with the value of each scholarship rising from 8,000 yuan to 10,000 yuan per student per year.
Lan also noted that the central government had “relatively large scope” to increase debt and increase the budget deficit, though he did not provide details.
China has set this year’s budget deficit at 3% of GDP, down from a revised 3.8% last year. The issuance of 1 trillion yuan worth of long-term special treasury bonds this year was not included in the budget. Local governments will issue special bonds worth 3.9 trillion yuan in 2024, compared with 3.8 trillion yuan last year.
($1 = 7.0666 RMB)
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