China signals more support for struggling local governments

by | Oct 24, 2023 | Financial

Workers assemble mini excavators in a factory of heavy machinery in Suzhou in east China’s Jiangsu province on Oct. 23, 2023.Future Publishing | Future Publishing | Getty ImagesBEIJING — China on Tuesday took steps toward easing financing conditions for local governments, which have been at the crux of recent economic difficulties.The central government said it formalized a process allowing local governments to borrow funds for the year ahead — starting in the preceding fourth quarter, according to an announcement published by state media.The State Council, China’s top executive body, would determine the amount a local government could borrow ahead of time, the report said, noting the framework would last for four years, through to the end of 2027.The measure was adopted at a meeting of the National People’s Congress Standing Committee, according to state media.The move helps stabilize fiscal policy, said Xu Hongcai, deputy director of the Economics Policy Commission at the China Association of Policy Science.“Right now economic growth drivers are still insufficient,” he said in a Mandarin-language phone interview, translated by CNBC. “Although this year it’s not hard to achieve the growth target of around 5%, there is great pressure on the economy next year.”Earlier this month, the International Monetary Fund lowered its growth forecast for China to 5% this year and 4.2% next year.The IMF cited “weaknesses” in China’s real estate sector and pressure on “debt repayments, home sales, and investment.”China reported last week that third-quarter gross domestic product grew by 4.9%, beating expectations and bolstering forecasts for full-year growth of around 5% or more.On Tuesday, Chinese authorities also announced the issuance of 1 trillion yuan ($137 billion) in government bonds for natural disaster relief, according to state media. Xinhua, the official state news agency, also pointed out the deficit would increase to 3.8% from 3%.”It came to the market as a surprise,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in a note. “China rarely revise[s] its budget.””I take this policy as another step in the ri …

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