China has announced new measures aimed at bolstering its struggling property sector, signaling a potential increase in government spending to counteract the ongoing economic slowdown. The Finance Ministry's recent briefing highlighted plans for local governments to utilize special bonds to purchase unsold homes, alongside hints of increased sovereign borrowing to support the economy.
During a recent briefing, Finance Minister Lan Fo’an announced that local governments would be permitted to use special bonds to purchase unsold homes. This move aims to alleviate the financial strain on local governments, which have been grappling with debt issues exacerbated by the property sector crisis.
Lan hinted at the possibility of issuing more sovereign bonds, stating, "The central government still has quite large room to borrow and increase the deficit." However, he did not provide specific figures, which may have disappointed some investors.
The measures announced are seen as a response to the ongoing economic challenges facing China, including deflation and a potential failure to meet the government's growth target of around 5% for 2024. Vice Premier He Lifeng described the property market as a "weather vane" for the economy, underscoring its significance in ensuring overall economic stability.
Economists have noted that the fiscal support measures are in line with expectations and could help mitigate local debt risks. Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc., stated, "The announced fiscal supports to mitigate local debt risks... are exactly what the market and investors are expecting."
While the Finance Ministry's announcement provided some clarity, it left many questions unanswered regarding the scale of the stimulus. Economists anticipate that more details will emerge following a meeting of top lawmakers in the coming weeks, including potential sales of additional treasury debt and a mid-year budget revision.
Goldman Sachs economists predict that the local government debt swap plan could be enlarged to around 5 trillion yuan over multiple years, building on previous approvals aimed at supporting debt resolution.
As China navigates its economic challenges, the government's commitment to supporting the property sector and local governments is a crucial step. While the measures announced are a positive sign, the effectiveness of these initiatives will depend on the details that emerge in the coming weeks. The focus remains on balancing growth with risk prevention, as the government seeks to stabilize the economy amid ongoing uncertainties.
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