BUSINESS-ECONOMY
As China grapples with significant economic challenges, the Ministry of Finance has announced a series of measures aimed at alleviating local government debt and stimulating consumer spending. Finance Minister Lan Fo'an outlined these initiatives during a recent press conference, emphasising the government's commitment to counter-cyclical fiscal policies designed to boost the economy as detailed in a report by CNBC. In a bid to address the pressing issues of deflation and weak consumer confidence, Lan revealed plans for increased fiscal support, particularly targeting local governments burdened by debt. He stated that there is substantial room for fiscal stimulus, indicating potential increases in government spending and debt issuance. While specific figures were not disclosed, analysts speculate that the government may issue special treasury bonds worth up to 2 trillion yuan (approximately $230 billion) to support household consumption and assist local authorities in managing their financial obligations. Julian Evans-Pritchard, head of China economics at Capital Economics, said at least 2.5 trillion yuan of additional funding is needed to keep growth around 5 per cent this year and next. The current economic landscape in China is characterised by a sharp downturn in the property market and sluggish consumer demand. Recent data has shown that consumer prices have remained stagnant, with moderate inflation for nearly two years. This prolonged period of low inflation has raised concerns among economists about the sustainability of China's growth trajectory, which is projected at around 5 per cent for 2024. Lan's announcement included provisions for local governments to repurchase unsold properties from developers, thereby injecting liquidity into the struggling real estate sector. Additionally, he highlighted plans to provide monthly allowances for families with two or more children, aimed at bolstering household spending. Despite these measures, some economists remain sceptical about their effectiveness in reversing the current economic challenges. Analysts have noted that while the government's intentions are clear, the urgency required to stimulate consumption appears lacking. They have pointed out that without a significant boost in consumer spending, achieving the targeted growth rate may prove challenging. Furthermore, concerns persist regarding China's heavy reliance on debt-fuelled infrastructure investment. The International Monetary Fund estimates that overall public debt stands at approximately 116 per cent of GDP, raising alarms about long-term sustainability. As such, while the recent announcements signal a proactive approach from Beijing, experts caution that deeper structural reforms are necessary to ensure lasting economic stability. Still, there are fund managers who are willing to bet on the Chinese equities as they are too low on valuations regardless of the stimulus package. “Whether it’s 2 trillion [yuan] or 10 trillion, for us, it actually doesn’t make so much of a difference,” Vikas Pershad, fund manager at M&G Investments, said Monday on CNBC’s “Squawk Box Asia.” “Our bet on China is a multi-year bet. The Chinese equities are too low in valuation.” Hence, China's Ministry of Finance is taking decisive steps to tackle local government debt and stimulate economic growth through increased fiscal support. As the nation navigates these turbulent economic waters, the effectiveness of these measures will be closely monitored by investors and economists alike. The coming weeks will be crucial as further details are expected to emerge from legislative discussions on fiscal policy adjustments. A journalist, writing for the WION Business desk. Bringing you insightful business news with a touch of creativity and simplicity. Find me on Instagram as Zihvee, tr None
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