China plans to “significantly increase” its government debt issuance to provide financial support to low-income households, bolster the struggling property market, and recapitalize state banks in an effort to revive slowing economic growth, according to Finance Minister Lan Foan. Speaking at a press conference on Saturday, Lan indicated that the government would roll out more “counter-cyclical measures” this year, without specifying the exact size of the fiscal stimulus.
“There is still relatively big room for China to issue debt,” Lan said, as the world’s second-largest economy grapples with deflationary pressures caused by a property market downturn and weak consumer confidence. These issues have underscored China’s heavy dependence on exports amid growing global trade tensions.
China’s economic performance has missed forecasts in recent months, sparking concerns among economists and investors about the government’s ability to achieve its 5% growth target for the year. Speculation about a potential long-term structural slowdown has grown, especially as September data, due to be released soon, is expected to show further signs of weakness. Despite this, Zheng Shanjie, chairman of the National Development and Reform Commission (NDRC), expressed confidence that the growth target would be met.
Global financial markets have been closely watching for signs of additional fiscal stimulus after China’s Politburo signaled urgency in addressing the economic challenges during a meeting in September. Chinese stocks surged to two-year highs, jumping 25% within days of the meeting, though they later retreated as details on the government’s spending plans remained unclear.
Reports last month suggested that China plans to issue special sovereign bonds worth approximately 2 trillion yuan ($284.43 billion) as part of its fiscal stimulus efforts. Around half of these funds would help local governments manage their debt, while the rest would subsidize consumer purchases of home appliances and other goods, as well as provide a monthly allowance of 800 yuan ($114) per child to households with two or more children. Additionally, China is considering injecting up to 1 trillion yuan ($142 billion) into state-owned banks to enhance their capacity to support the economy.
China’s central bank has already implemented its most aggressive monetary support since the COVID-19 pandemic, including mortgage rate cuts to address the prolonged slump in the property sector. While these measures have boosted Chinese stock prices, many analysts argue that Beijing must tackle deeper structural issues, such as increasing domestic consumption and reducing its reliance on debt-driven infrastructure investment.
Local governments, burdened by $13 trillion in debt, have been a focal point of China’s fiscal stimulus, and Lan confirmed that Beijing will assist them in addressing their financial problems. Local authorities still have 2.3 trillion yuan ($325.5 billion) in available funds to spend in the final quarter of the year. Lan also noted that local governments would be permitted to repurchase unused land from property developers to help manage the property market crisis.
Low wages, high youth unemployment, and weak social safety nets have hampered household spending in China, which accounts for less than 40% of the country’s annual economic output—significantly below the global average. In contrast, investment remains 20 percentage points above the global norm. A report from recruiting platform Zhaopin showed that average pay in China’s major cities fell by 2.5% in the third quarter, further highlighting the economic challenges.
Amid these difficulties, Swedish furniture retailer Ikea, with 39 stores in China, urged the government last week to implement additional stimulus to combat the fallout from the ongoing property crisis.
