China’s economy has been on a roller coaster ride, but bold steps are being taken to ensure a strong recovery. China’s Vice Finance Minister Zhu Zhongming recently announced the issuance of 1 trillion yuan worth of new sovereign bonds, equivalent to about $137 billion. This measure aims to stimulate domestic demand and solidify the economic recovery.
The funds will be used to rebuild areas affected by this year’s devastating floods and improve urban infrastructure to cope with future disasters. China’s economy beat expectations in the third quarter, raising hopes of achieving the annual growth target of around 5% by 2023. However, the struggling real estate sector remains a brake on progress.
To address this, China significantly increased its 2023 budget deficit to about 3.8% of gross domestic product. While this increase in the deficit may stimulate the economy, some experts worry about the sustainability of the debt-financed stimulus.
The immediate positive economic impact of the new debt issuance should not be overstated, according to Ting Lu, Nomura’s chief China economist. However, Zhu assures us that the government will take a balanced approach and ensure proper spending of the funds.
Half of the funds raised through the bond issue will be used this year, while the remaining half will be used in 2024. In addition, China’s parliament has passed a bill that allows local governments to front-load part of of its 2024 local bond quotas, accelerating infrastructure. projects and further boost economic growth.
In conclusion, China is implementing various measures to ensure a strong economic recovery. With new sovereign bonds, greater fiscal stimulus and a focus on infrastructure development, they hope to overcome the challenges and achieve their ambitious growth targets. We will follow closely how these measures develop and their impact on the world’s second largest economy. Stay tuned for more updates.
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