The central government established a framework allowing local governments to borrow in anticipation of the next year, as reported by state media. As of Tuesday evening, future markets for Chinese securities demonstrated a rise of 2.5% or more, as reported by Wind Information. Recently, the International Monetary Fund lowered its growth projection for China to 5% this year and 4.2% next year, citing real estate problems.
On Tuesday, the Chinese central government took a step to make it easier for local governments to access financing, a major factor in recent economic difficulty. The State Council, China's executive body, stated that they would determine in advance the amount these governments could borrow prior to the upcoming quarter. This plan will last for the next four years through 2027 and was officially established during a National People's Congress Standing Committee meeting. Xu Hongcai, deputy director of the Economics Policy Commission at the China Association of Policy Science, suggested that this action would help stabilize fiscal policy.
He noted in a Mandarin-language phone interview, which was translated by CNBC, that economic growth drivers remain inadequate. Even though reaching a growth target of roughly 5% this year should not be difficult, there is a heavy burden on the economy for the next year. Recently, the International Monetary Fund downgraded its forecast for China’s growth this year to 5% and for next year to 4.2%, taking into account problems in the real estate sector and issues with debt repayment, home sales and investment. In spite of this, data from the past week has suggested that for 2020 China's gross domestic product should still reach about 5% or more. On Tuesday, authorities of China declared that 1 trillion yuan ($137 billion) of government bonds would be allocated to relief for natural disasters, as per the state media. Xinhua, the official news agency, also pointed out that the deficit ratio would increase from 3% to 3.8%. Regarding this matter, the president and chief economist of Pinpoint Asset Management, Zhiwei Zhang, shared in a note that the move was not expected. He stated he sees the policy as a step in the right direction, as China ought to increase the support of its fiscal policy given the deflationary pressure in the economy. Part of the funds will be used next year, hence this should help to boost the growth outlook for past the fourth quarter.
On Tuesday, Bloomberg reported - citing sources - that Chinese President Xi Jinping had paid his first known visit to the People's Bank of China since assuming the country's top leadership role. Although CNBC was unable to verify the report independently, the futures of China stocks rose across the board, with the stocks traded in Hong Kong's market increasing by about 2.5% or more as of Tuesday evening, according to Wind Information data. Furthermore, Chinese media reported that Lan Fo'an would be replacing Liu Kun as the Minister of Finance. Bruce Pang, JLL's Chief Economist and Head of Research for Greater China, mentioned that the higher debt-to-GDP ratio and central government's ad hoc issuance of additional debt was likely to provide sufficient policy and economic support to drive a stronger and faster recovery, mitigating macroeconomic hindrances and risks.
Comments