(Bloomberg) -- New stimulus under consideration in China would raise this year's budget deficit and ensure the economy achieves the government's official growth target of about 5%, though more support is likely needed to boost weak demand.
That's according to economists and analysts after Bloomberg News reported policymakers are weighing the issuance of at least 1 trillion yuan ($137 billion) of additional sovereign debt for spending on infrastructure. The discussions underscore mounting concerns among China's top leadership over the trajectory of the world's second-largest economy and how growth compares to the US.
Here's a roundup of reactions from analysts to the report:
Tommy Xie, an economist at Oversea-Chinese Banking Corp. Ltd.:
“I perceive this development as a constructive step toward addressing the issue of local government debt. While China's aggregate government debt-to-GDP ratio aligns with those of many developed economies, the country's distinct debt structure presents its own set of challenges.”
“The proposition to enable the central government to assume a larger portion of the debt emerges as a viable solution. This approach could alleviate the financial strain on local governments, fostering an environment where resources can be reallocated and optimized to stimulate growth and bolster economic sentiment.”
Xiaojia Zhi, head of research at Credit Agricole CIB:
“China should do more to show they are committed to stabilize growth and boost demand. A modestly higher deficit by the central government should not be too concerning to investors. It's necessary for the central bank to shoulder more responsibility to boost fiscal spending and stimulate demand.”
“While this is yet to be confirmed, I think this is a reasonable consideration, given that private demand is still soft, and local fiscal conditions remain tight given the property sector downturn. The central government debt ratio remains low, and its balance sheet still quite healthy. One trillion yuan is a modest amount — about 0.7% GDP — but the message would be positive.”
Bruce Pang, chief economist at Jones Lang LaSalle Inc.:
“The ad hoc issuance of additional debt from the central government could provide extra policy support and more resources to re-engineer a stronger and faster recovery, offsetting macro headwinds and uncertainties. China's recovery story could be a relay race, spurred by infrastructure investment at first, and hopefully fueled by enterprises capital expenditures and household spending as a follow-up.”
Kiyong Seong, lead Asia macro strategist at Societe Generale SA:
“Mulling an additional bond issuance at this time of the year is a positive surprise. However, a speculated destination of infrastructure investment will dilute the positive impact. Therefore, there could be a marginal upside risk to China rates, but no meaningful downside impact on USD/CNY.”
“An additional bond issuance is not free, probably at the expense of a bit higher yields or at least smaller scale of a decline in bond yields going forwards. Then, it would be better to be spent on the area with more direct effect on consumption recovery.”
Ding Shuang, chief economist for greater China and North Asia at Standard Chartered Plc.
“The initiative would sound more reasonable if it was contemplated three months ago, when China just suffered a setback in its post-Covid recovery in the second quarter. Given the fiscal room under the approved budget is not fully utilized, and the economy has seen marginal improvement in August and September, I think the timing of introducing additional fiscal stimulus is questionable.”
He Wei, China economist at Gavekal Dragonomics:
“It will lift the economy and increase the chance for China to reach GDP growth of 5% this year. If the additional sovereign debt can be used in time, it will bring a decent quarterly growth in the fourth quarter. ”
--With assistance from Wenjin Lv, Iris Ouyang, Tania Chen and Tian Chen.
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