China Unveils $1.4 Trillion Debt Refinancing Plan; Investors Unimpressed

Nov 8, 2024, 08:36 AM

China has approved a 6 trillion yuan ($839 billion) program to refinance local government debt, as Beijing rolls out more measures to support the slowing economy. The total program amounts to 10 trillion yuan ($1.4 trillion) when including additional special bonds to be issued through 2029. The Standing Committee of the National People's Congress approved the plan to address the 'hidden' debts of local governments, which totaled 14.3 trillion yuan at the end of 2023. The program aims to reduce this hidden debt to 2.3 trillion yuan by 2028. Finance Minister Lan Fo'an announced that the debt swap could save local governments about 600 billion yuan in interest costs, as statutory debts have significantly lower interest rates than hidden debts. China will raise the local government debt ceiling by 6 trillion yuan to 35.52 trillion yuan for 2024 and will arrange 800 billion yuan in new local government special bonds each year for five years to resolve local debt issues starting from 2024. The government plans to ban local government spending and investment not included in the budget. Despite these measures, the yuan declined, and Chinese stocks fell after the announcement, signaling that investors were not impressed with the latest attempt to support the economy. Additional fiscal policies and measures to support the property market are expected to be rolled out soon.