Beijing. China announced this Saturday that it will massively resort to public debt, through special bonds, to stimulate its slowing economy and boost the real estate and banking sector. China’s finance minister announced that the country has 2.3 trillion yuan (about $325 billion) available in special bonds to use over the next three months.
These are measures that investors have been asking China for as the world’s second-largest economy loses momentum and struggles to overcome deflationary pressures and lift consumer confidence amid a sharp decline in the real estate market.
The announcement adds to a series of measures communicated in recent weeks, such as the cut in interest rates, and aims to strengthen banks, support the real estate market and encourage consumption.
China will also allow local governments to take on more debt to finance the purchase of developable land and thus stimulate the long-stagnant real estate market. Finance Minister Lan Fo’an did not provide details at a press conference about the special bonuses announced. But he said China still has room to issue debt and increase the deficit
in order to finance new measures.
In 2023, China had one of its weakest growth in the last three decades (5.2 percent), an official figure that some economists questioned. For this year, the Chinese government aims to grow 5 percent, a number that any Western country would like, but which is far from the double-digit expansion that the Chinese economy sustained for years.
Real estate boost
Vice Finance Minister Liao Min said special bonds will be issued for local governments to acquire land for urban development purposes, a move expected to boost the real estate market. This initiative would help reduce the pressure on local governments and real estate companies regarding debt and liquidity
he explained.
Beijing will also encourage the purchase of existing commercial properties to be transformed into affordable housing.
But the fact that Beijing refrained from specifying the amount of these additional fiscal stimuli generated criticism among analysts. While stimulus measures to alleviate economic uncertainty include cutting rates and making home purchases more flexible, economists say more than that is needed. Economic uncertainty has also weighed on consumption.
On Saturday, the main Chinese banks announced that starting October 25 they will lower mortgage rates across the board, without customers having to request it.
Clash with the EU over electric vehicles
China urged the European Union not to hold separate negotiations on the price of Chinese-made electric vehicles sold in the EU, warning that this would shake the foundations
of bilateral tariff negotiations, China’s Ministry of Commerce said on its website.