Many analysts and investors had hoped for more straightforward Chinese stimulus measures following Donald Trump's victory in the US election last week. Trump's victory implies a threat of dramatic tariff hikes on China's exports to the US, according to Trump's campaign promises, 60 percent on all Chinese goods.
Luxury stocks fall
The stock exchanges in Hong Kong and Shanghai had closed down ahead of the presentation of the new measures. But stocks in luxury companies with significant exposure to China – such as Gucci-owner Kering and LVMH – are falling following the reports.
It's about handling hidden debts with new bonds. So, it's not really a stimulus package, says Juuso Kaaresvirta, senior economist at Bofit, the Finnish central bank's institute for growth economies.
However, indirect debt relief for local authorities could have positive effects on growth. The new bond loans intended to replace hidden financing solutions are expected to have more favorable terms, which could open up for more investments and public consumption at the local level, according to Kaaresvirta.
It also clarifies for China's central government how large hidden debts local authorities have incurred, with financial solutions, he says.
"An important political decision"
Concretely, Friday's measures involve China raising the debt ceiling for local authorities to 35,520 billion yuan over three years. This means that the authorities can take up new bond loans for 6,000 billion yuan (approximately 9,000 billion kronor) over a three-year period.
In addition, the local authorities will be allowed to borrow an additional 4,000 billion yuan (approximately 6,000 billion kronor) with special bonds over a five-year period.
It's an important political decision that takes into account international and domestic development environments, the need to ensure stable economic and financial operations, and the actual development situation for local authorities, says China's finance minister Lan Fo'an at a press conference.
China's economy, which has had significant financial problems in the real estate sector for several years, is characterized by unexpectedly poor growth this year, with weak consumption and problems such as unusually high youth unemployment.
Growth in China during the third quarter was, according to official statistics, down to 4.6 percent, which can be compared to the official target for 2025 of 5.0 percent. However, many Western analysts believe that the figures are inflated to hide the fact that the downturn is actually even deeper.
The central bank in Beijing has lowered interest rates this autumn, and the Chinese government has provided financial support, including to the financial market, provinces, and local authorities.
