China: start of new public debt issues. Measures for low-income people and students under consideration
Beijing has decided on a series of measures to boost the economy: households, banks, local authorities on the list of beneficiaries of the maxi placement
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Key points
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The arcane is revealed. China will increase debt to support needy households, the property market and the recapitalisation of state-owned banks. After the black Friday of the Asian stock markets caused by the plunge of the Chinese stock markets, the Ministry of Finance in Beijing is therefore entrusting the recovery of the economy primarily to new public debt issues;
The fiscal stimulus
.The titanic effort of monetary stimulus, even cutting mortgage rates, by the Central Bank at the end of September was not enough to correct the situation. The solemn announcement of the new borrowing was made at a press conference by Finance Minister Lan Foan, with his three deputies Liao Min, Wang Dongwei and Guo Tingting. The Finance General Staff did not quantify the measure, 'detailed policies will be announced after the completion of the necessary legal procedures'. Lan also noted that the central government has a 'relatively wide margin' to increase the debt and budget deficit, although he did not provide details.
Budgetary constraints
.However, it is known that China is expected to issue special sovereign bonds worth around 2 trillion yuan (equivalent to USD 283.02 billion) by 2025 and that the issuance of 1 trillion yuan in ultra-long special treasury bonds by 2024 is not included in the budget. There are also budget constraints, in March the budget deficit was set at 3 per cent of GDP, lower than last year's revised 3.8 per cent, while local governments will already issue 3.9 trillion yuan in special bonds in 2024, up from 3.8 trillion yuan last year.
The true beneficiaries
.Local governments and their hidden debts top the list. China will increase support to local governments to tackle hidden debt risks, the government has allocated 1.2 trillion yuan (USD 169.81 billion) in local bond quotas this year also to settle accounts with the central government. In the pipeline is a large-scale debt swap programme, in addition to the continued use of bond quotas for debt resolution, which alone is certainly already an outstanding manoeuvre. In addition, China will expand the use of local government bond proceeds to support the real estate market and recapitalise large state-owned banks. Special Treasury bonds will be issued to strengthen the core Tier-1 capital of the state-owned big four, for whom financial risks are a big issue;
Brick victims
.Local governments will be able to use special bonds to purchase unused land, improving 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 continue to finance affordable housing projects. It is also considering a VAT adjustment related to residential properties and is considering other fiscal policies to support the real estate market.
