About 60% of the $1.4 trillion package will help reduce local governments’ hidden debt, while 40% will fund buybacks from financially struggling developers.
The fiscal package that will be debated by the China next week will seek to alleviate local government debt problems and strengthen the real estate sector, rather than trying to generate a rapid increase in consumption, analysts say.
The aim is to stabilize the country’s economy and boost the real estate sector, which is weighing on the economy and fueling deflation, they said.
Bigger-than-expected monetary stimulus last month fueled unfettered investor speculation about a successful complementary fiscal program to immediately revive flagging economic activity. On Tuesday, the Reuters reported that the main legislators of the China will consider, next week, approving a new debt issuance of more than 10 trillion yuan ($1.4 trillion) in the coming years.
Hidden debt, repurchase of idle land, apartments
Nearly 6 trillion yuan will be used mainly to reduce the unaccounted debt of municipalities, while 4 trillion they will finance buybacks of idle land from financially struggling developers and help reduce a giant backlog of unsold apartments.
The ongoing measures represent a more calibrated approach to stimulus, which represents a departure from previous strategies to revive growth.
In 2008, for example, the China invested generous resources directly into the infrastructure and real estate sectors to combat the effects of the global financial crisis.
“The main objective of this stimulus is clearly more about bolstering balance sheets than boosting short-term GDP growth,” he said. Christopher Beddordeputy director of research at China already Gavekal Dragonomics.
“This should alleviate tensions, but not necessarily generate instantly greater expenses.”
‘Excesses of previous stimuli’
This prudent approach is partly informed by the fact that the China it is now suffering from previous excesses of stimulus. But it also leaves open questions about the impact the measures will have on short- and long-term growth.
This persistent uncertainty is reflected in financial markets, with Chinese stocks falling about 0.5% on Wednesday, pulling other Asian markets lower.
“The package could be a painkiller rather than a booster for the economy,” he said Gary Ngsenior economist at Natixis. “The economic impact may not be as big as it appears on the surface.”
Still, a program worth more than 8% of gross domestic product (GDP) of the world’s second largest economy cannot be ruled out.
“It’s not just about quantity. It’s about providing a sense of stability,” he said. Zong Liangchief researcher at Bank of China state.
Local governments, facing high debt and falling revenues, have been cutting public employee salaries and other expenses. Cash-hungry real estate developers have struggled to resume work on incomplete projects, hurting jobs and incomes.
A China hopes to unclog the pipes that transmit money to businesses and consumers by shifting liabilities to the central government’s healthier balance sheet, which carries a debt of just 24% do PIB.
Liquidity squeeze
“Policymakers seem to feel that there is a major liquidity crisis currently going on among local governments, largely due to the housing crisis, leading many local authorities to stop paying their employees and corporate suppliers,” he said. Beddoryes Gavekal.
Dealing with this crisis frees up resources for the real economy, but the impact may only appear in the second half of 2025, he added.
Another lingering question is whether the package merely postpones the debt crisis.
O International Monetary Fund calculates the explicit debt of local governments in 31% do PIB at the end of 2023, the number of its financial vehicles in more 48% do PIB and other government-related debts in other 13%.
Add central government debt and the total comes to 116 trillion yuanestimates the Bottom.
In the real estate sector, the Goldman Sachs estimates that the stock of unsold properties, if fully built, would reach 93 trillion yuan ($13 trillion).
Overcoming these past excesses depends on the package’s ability to initiate a virtuous circle of growth that allows China contain, rather than simply transfer, these responsibilities.
‘Limited growth impact’
Many analysts say a decades-long household consumption deficit impedes such prospects.
Low wages, high youth unemployment and a weak social safety net leave Chinese household spending below 40% do PIBor about 20 percentage points behind the global average.
Although Beijing It must also reveal consumer subsidies for household appliances and other goods, the amount will be a small fraction of the difference.
“It appears that support for consumption remains modest,” he said Louis Kuijschief economist for Asia at S&P Global.
“This means it remains unlikely that we will see a substantial improvement in economic growth prospects or that the risks of deflation have been overcome.”
Via News Agencies
Source: https://www.ocafezinho.com/2024/11/04/medidas-fiscais-da-china-prometem-solucao-para-divida-e-crise-imobiliaria/
