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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.
Authorities have said they will issue a total of Rmb10tn in bonds over three to five years, allowing China’s heavily leveraged local governments to restructure their finances, officials announced at a press conference on Friday presided over by finance minister Lan Fo’an.
But the officials did not announce additional measures to directly stimulate domestic demand, potentially disappointing markets that had been hoping the package would also help consumers.
The debt relief measures, which follow the announcement of a large monetary stimulus in September, had been expected even before Trump won the US presidential election this week with promises including levying 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 was expected to announce additional support for the economy once Trump’s agenda became 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.
