NELSON DE SÁ
The Permanent Committee of the National People’s Congress approved a 10 trillion yuan (R$8 trillion) local government debt refinancing program in China, above what had been projected until the election of Donald Trump in the United States.
According to a journalist from the Chinese news channel CGTN, Yingshi Gao, it is “the biggest debt exchange plan in the history” of the country. However, it still would not have been enough for the external financial market. According to the MarketWatch website, shares of Chinese companies abroad subsequently fell, among other signs of frustration.
Beijing raised the ceiling on local debts to 35.5 trillion yuan, allowing the issuance of 6 trillion in special bonds over the next three years, starting now, to exchange debt described as “hidden”, unaccounted for. Provinces and cities will also be able to reallocate, for the same purpose, the already scheduled issuance of another 4 trillion yuan over the next five years.
According to Finance Minister Lan Fo’an, local hidden debts reached 14.3 trillion yuan at the end of last year. Among others, economist Li Daokui, from Tsinghua University, had been pointing out that they reach 20% of China’s GDP, around 30 trillion, and arguing that they need to be exchanged entirely for long-term bonds.
The meeting of the Permanent Commission, the country’s main legislative body, was regularly scheduled for the end of October, but was postponed pending the American election, held last Tuesday (5). Trump, during the campaign, talked about increasing tariffs on Chinese products by 60%, among other threats to the country’s economy.
The refinancing was announced after five days of meetings, at a press conference led by the minister. No new specific actions were adopted to stimulate consumption, but Lan said he was preparing other bond issues to acquire land and properties that are currently idle, aiming to reactivate the real estate sector, and to capitalize state banks.
“This decision considers multiple factors, including the international and domestic environment”, stated the minister, at the beginning of the interview. “It’s the key fact in this year’s series of incremental policies.”
According to him, “by 2028, the total hidden debt that local governments need to resolve will drastically decrease to 2.3 trillion yuan, with the average annual resolution amount reduced from 2.86 trillion to 460 billion, greatly easing debt pressure.” .
Several other incremental actions have been taken previously, notably those released on September 24 by the People’s Bank of China, the central bank, aimed at reducing lending rates.
The first effects would have been observed in the resumption of industrial activity, as early as October, opening the last quarter of the year – in which Beijing seeks to guarantee projected growth of around 5% for 2024.
Also this Friday, the State Council, the Chinese cabinet, approved measures for foreign trade, aiming to improve loans and other financial services for exporting and importing companies, among other support for stabilizing the sector.
The previous day, the central bank had released statements by its president, Pan Gongsheng, to executives of foreign institutions, promising to expand the opening of the financial sector and maintain the “dynamic balance between internal and external factors”, among others.
