China approves $839 billion refinancing of local government debt in fresh stimulus

China approves plan to raise local government debt limit in fresh round of stimulus

China's top legislative body - the National People's Congress (NPC) - on November 8 approved the State Council's proposal to increase local government debt limit by $839 billion.

The debt swap plan is spread over three years, said Xu Hongcai, the vice chairman of the Financial and Economic Affairs Committee of the National People’s Congress, and will help reduce China's interest payments by 600 billion yuan over five years, freeing up resources for development.

Debt Relief

AFP News quoted CCTV describing the step as China's "most powerful debt reduction measure in recent years". The move is expected to free up space for local governments "to better develop the economy and protect people's livelihood", it said.

The hidden debt - or off-balance-sheet liabilities of local governments - may come down from 14.3 trillion yuan to 2.3 trillion yuan by the end of 2028 after this measure, Finance Minister Lan Foan said at the briefing.

Beijing is attempting to shore up support for a slowing Chinese economy that is facing new threats of tariff curbs after the re-election of Donald Trump as the US President.

The Chinese Finance Minister said further fiscal support will be added next year.

Green Pledge

China also announced its pledge to decarbonise the economy by 2060, passing a new energy law to "promote... carbon neutrality". The NPC briefing said the energy law would "actively and steadily promote carbon peaking and carbon neutrality".

Xinhua said the law was formulated to "promote high-quality energy development, ensure national energy security."

Many analysts bet that China’s stimulus support will need to rise going forward, to accommodate any tariff curb that may be placed by Trump 2.0 administration.

Market Reaction

The offshore yuan slipped, and China’s 10-year bond yield edged lower near 2.08%, a level not seen since September, indicating a muted reaction by in the money market.