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China’s Ministry of Finance held a press briefing over the weekend focusing on addressing local government debt problems rather than providing the stimulus that markets were anticipating. Minister of Finance Lan Fo’an outlined four measures aimed at supporting local governments in resolving debt risks before hinting at increasing debt and the deficit. The central government is expected to take a larger role in debt restructuring and stabilizing the housing market. The government’s efforts are aimed at tackling structural issues rather than implementing Keynesian-style fiscal expansion.
China’s real estate market slump has impacted local government revenues, exacerbating financial struggles that existed even before the need for Covid-19 spending. Calls for more fiscal stimulus have intensified due to lackluster consumption and slow overall growth. The Ministry of Finance announced policies to allow local governments to use bonds to support spending and address hidden debt levels. Resolving local government debt problems is seen as a critical step towards stabilizing prices and boosting demand. Investors are awaiting a meeting of China’s parliament at the end of the month, where national budget changes will be approved.
Analysts are divided on the amount of fiscal support needed, with some emphasizing the importance of policy direction rather than stimulus size. China’s policymakers have been conservative in their approach, refraining from cash handouts to consumers post-pandemic. Additional funding may be needed to maintain growth around 5% in the upcoming years due to structural headwinds. Fiscal policy is considered crucial for addressing the economic slowdown, with a focus on effective utilization of additional borrowing rather than just recapitalizing banks or addressing existing debt problems among local governments.
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Emily Jensen, graduated from the London School of Economics and Political Science (LSE) in the UK in 2015 with a degree in Economics. She specializes in financial markets and international trade. After graduating, she worked as an analyst at an investment bank in London, where she developed expertise in global economic trends. She later transitioned into consulting, focusing on fintech ventures and providing insights into global economic developments. Emily is passionate about the intersection of finance and technology and aims to drive innovation in the financial sector.
