China’s top legislature on Friday approved a State Council bill to raise the debt ceiling of local governments by 6 trillion yuan, replacing existing “hidden debts.”
The Standing Committee of the 14th National People’s Congress (NPC) announced that under the new agreement, the special debt ceiling of local governments will increase to 35.52 trillion yuan from 29.52 trillion yuan by the end 2024.
This change is expected to reduce the hidden debts that Chinese local governments must manage by 2028 from 14.3 trillion to 2.3 trillion yuan.
Ahead of the announcement, VanEck portfolio manager Alice Shen called China’s next fiscal policy plan “vigorous,” particularly in light of Donald Trump’s re-election and his proposed tariffs. 60% on all imports from China.
“The central government is intervening to help them emerge from this gloomy environment and is also seeking to support the banks in their recapitalization.”
Shen stressed the importance of revitalizing China’s domestic consumption, noting that the government has been cautious since the pandemic, rolling out various fiscal intervention and equity policies. She said the latest budget plan underlines the government’s urgency to achieve its gross domestic product (GDP) growth target of 5 percent for the year.
She added that due to the long-term downturn in real estate, “people were not yet willing to open their wallets.”
The stabilization of China’s real estate sector and continued investment in infrastructure are expected to play a central role in boosting Australia’s resources sector, given China’s status as Australia’s largest trading partner.
“With central government intervention to address unsold property units and stabilize the property market, this could increase demand for Australian iron ore,” Shen said.
Additionally, Shen highlighted China’s investments in advanced technologies, such as electric vehicles, battery cells and solar panels, which will increase demand for raw materials like copper.
“Australia could also benefit in the coming years,” she said.
Although “the bigger the stimulus package, the better,” Shen warned that the scale of China’s stimulus package would be less important than its follow-up action.
This includes helping indebted local governments generate alternative sources of revenue outside of real estate land sales, buying unsold apartments to help clear housing stocks, and implementing a larger-scale program. to encourage consumption.
Prices
While it remains unclear whether Trump’s proposed 60% tariffs on all Chinese imports will be implemented, Shen noted that Australia’s domestic resources sector could suffer indirect effects.
“A 60 percent tariff is what Trump demanded in his campaign; it still remains uncertain whether he will actually impose it or not. We will all have to wait and see,” Shen said.
However, she noted, according to historical data, U.S. imports of Chinese goods declined during Trump’s first term.
At the same time, China is exploring opportunities to significantly increase its exports to emerging markets, including ASEAN and BRICS countries.
“I think there will be negative impacts on Chinese GDP growth in the coming years, but it remains uncertain and we will have to analyze, as the announcement progresses, whether Trump will actually do anything. [regarding tariffs].”
