China will ‘significantly' increase spending to revive economic growth

China plans to significantly increase its government debt issuance to provide subsidies for individuals with low incomes, support the property market, and strengthen the capital base of state banks. This initiative aims to revive the country's slowing economic growth. While specifics on the fiscal stimulus have not been disclosed, announcements indicate that the government will implement more counter-cyclical measures throughout the year.

Recent economic indicators have underwhelmed, heightening concerns over whether China can achieve its roughly 5% growth target for the year amidst signs of structural slowdowns. Upcoming data for September is expected to reflect continuing economic weakness.

The government is anticipated to issue special sovereign bonds amounting to approximately 2 trillion yuan ($284.43 billion) as part of the stimulus. Half of these funds will assist local governments in addressing debt challenges, while the remainder will subsidize purchases of home goods and provide monthly child allowances for families with two or more children.

Additionally, there is consideration of injecting substantial capital into major state banks to bolster economic support. These actions follow aggressive monetary policies introduced in September, aiming to rejuvenate the property sector by reducing mortgage rates.

Despite these efforts, experts suggest that China must tackle underlying structural issues, such as enhancing consumer spending and reducing dependency on debt-driven infrastructure investment. Current spending patterns have resulted in $13 trillion in local government debt, with much of the fiscal stimulus poured into investments with diminishing returns.

Local governments have a budgetary allowance of 2.3 trillion yuan ($325.5 billion) to spend in the remaining months of the year, utilizing debt quotas and unspent funds. They can now also redeem unused land from developers.

Challenges remain due to low wages, high youth unemployment, and weak social safety nets, leading to household spending that constitutes less than 40% of the GDP, significantly below the global average.