China Takes Steps to Ease Financing Conditions for Local Governments
In an effort to address recent economic difficulties, China has announced measures to ease financing conditions for local governments. The central government has formalized a process that allows local governments to borrow funds for the upcoming year, starting in the preceding fourth quarter. This move aims to stabilize fiscal policy and provide support for economic growth.
According to state media, the State Council – China’s top executive body – will determine the amount of funds that local governments can borrow ahead of time. This framework will be in place for four years, until the end of 2027.
Xu Hongcai, the Deputy Director of the Economics Policy Commission at the China Association of Policy Science, emphasizes the necessity of stabilizing economic growth. He claims that although achieving this year’s growth target of around 5% may not be difficult, there is significant pressure on the economy next year. The International Monetary Fund (IMF) recently lowered its growth forecast for China to 5% this year and 4.2% for next year, citing weaknesses in China’s real estate sector and debt repayments.
Chinese authorities have also announced the issuance of 1 trillion yuan ($137 billion) in government bonds for natural disaster relief. This unexpected move is expected to increase the deficit to 3.8% from 3%. Zhiwei Zhang, President and Chief Economist at Pinpoint Asset Management, sees this policy as a positive step, as it will help boost the growth outlook beyond the fourth quarter and provide fiscal support given the deflationary pressure in the economy.
President Xi Jinping Visits People’s Bank of China
Bloomberg reported that Chinese President Xi Jinping made his first known visit to the People’s Bank of China since assuming top leadership. This visit, however, has not been independently confirmed by AsumeTech or other sources.
Stock futures for China and Hong Kong saw significant gains following this news, indicating positive market sentiment.
Major Personnel Changes
Lan Fo’an is set to replace Liu Kun as Minister of Finance, according to Chinese state media. This change in government personnel is expected to provide extra policy support and ammunition to drive a stronger and faster recovery, counteracting macro headwinds and uncertainties.