China Begins Stimulus Plan to Address Debt and Spur Economic Growth

On November 8, China unveiled a major stimulus plan, allowing local governments to issue an additional $827.7 billion in bonds over the next three years to address rising "hidden debt."

This comes after previous interest rate cuts, but analysts suggest China must spend up to $1.4 trillion annually to recover from a prolonged property slump.

The National People’s Congress approved this fiscal expansion, raising the local government debt ceiling from 29.52 trillion yuan to 35.52 trillion yuan. The government’s hidden debt surpassed 14 trillion yuan by 2023, with plans to reduce it to 2.3 trillion yuan by 2028. The IMF reports the total government debt at 147 trillion yuan, or 117% of GDP.

While the scale of the overall stimulus is still unclear, analysts expect an increase in debt issuance to up to 10 trillion yuan in the coming years, potentially reducing annual interest payments. The package is focused on long-term structural issues rather than immediate recovery, with little direct consumer support. Economists warn that while the stimulus is vital to meet growth targets, it may not significantly boost domestic consumption or confidence.

The NPC also approved 6 trillion yuan in special bonds to recapitalize state banks, with fiscal deficit targets expected to rise by 2025. Experts stress that further targeted fiscal spending on local debt and households will be necessary to reignite consumer confidence and drive sustainable growth.