China Plans Additional Stimulus to Boost Growth
China is all set to unleash additional stimulus packages with the aim of achieving the proposed growth, as reported by Bloomberg. China”s move to increase the budget deficit comes amid economic turmoil that has affected all sectors of the economy.
The plans are subject to final approval by the State Council and the legislature. The Ministry of Finance and the National Development and Reform Commission have not responded to inquiries made by Reuters.
According to the report, China is considering issuing 1 trillion yuan ($137 billion) in additional sovereign bonds, with which companies can fund additional infrastructure projects, such as water conservancy projects. With this budget deficit, the company”s deficit will rise above 3% of the estimated GDP.
Officials are currently deliberating on these matters, and an official announcement will be made soon. These deliberations are specifically based on growing concerns about the growth trajectory and its comparison with the U.S.
China is currently the world”s second-largest economy, after the U.S., and its downturn has affected global growth. Many agencies have revised down their global growth outlook, which was previously capped at 5%.
The offshore yuan has recovered from its earlier losses and is now trading 0.1% higher. Meanwhile, the yield on 10-year government bonds has increased by 1.5 basis points to 2.68%. Hang Seng China Enterprises Index futures, which are set to expire in October, have also risen by 1.7%.
According to Bruce Pang, the chief economist at Jones Lang Lasalle Inc., the central government’s decision to issue additional debt could provide extra policy support and resources to engineer a stronger and faster recovery. He believes that China’s recovery story could be a relay race, with infrastructure investment being the first spur before being fueled by spending among businesses and households.
The Chinese central bank had recently reduced the key interest rate, providing more liquidity in the banking system. Moreover, it extended support for housing sales and consumption and sped up the issuance of special local government bonds since August. However, despite all these measures, China has not achieved the desired results.
It is in this context that China has opted for another stimulus package.
