On October 13, 2024, China pledged to significantly increase its debt to revitalize its economy, although specific details regarding the total value of the stimulus package were not disclosed. Finance Minister Lan Foan stated that Beijing would assist local governments in managing debt issues, provide subsidies for low-income individuals, support the real estate market, and recapitalize state banks, among other measures.
Investors have long awaited these steps as the world's second-largest economy faces deflationary pressures and declining consumer confidence, largely due to a faltering real estate market. However, the absence of a precise figure for the stimulus package prolongs uncertainties for investors, who are looking for clear policies ahead of the next meeting of the Chinese legislature, which is expected to approve additional debt issuance.
Recent economic data has raised concerns that the government's growth target of approximately 5% for this year may be at risk, with indications of a potential long-term structural decline. Economic data for September, set to be released in the coming days, is anticipated to reflect ongoing economic weakness, despite Chinese officials expressing full confidence in achieving the 2024 target.
The speculation surrounding a new fiscal stimulus was fueled by a meeting of top Communist Party leaders in September, which indicated an increased sense of urgency regarding the economy. Following that meeting, Chinese stocks reached two-year highs, rising by 25% within days, before retreating again amid ongoing uncertainty regarding official policy details.
Last month, reports indicated that China plans to issue special sovereign bonds worth approximately 2 trillion yuan (about $284.43 billion) this year as part of its fiscal stimulus. Half of this amount is expected to assist local governments in managing their debts, while the other half will subsidize the purchase of appliances and other goods, as well as provide monthly aid of around 800 yuan ($114) for households with two or more children.
Additionally, Bloomberg News reported that China is considering injecting up to 1 trillion yuan into its largest state banks, although analysts caution that weak loan demand may limit the effectiveness of this move. In September, the Central Bank announced unprecedented monetary support measures since the COVID-19 pandemic, including interest rate cuts and a liquidity injection of 1 trillion yuan. However, analysts emphasize that Beijing must address deeper structural issues, such as increasing consumption and reducing reliance on debt-financed infrastructure investments.