China could tap 12 trillion yuan in new debt for stimulus in 2025, economist says

To ensure stimulus measures are long-lasting and effective, a Chinese economist said, speed and scale must be prioritised

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China can engage in more government spending to stimulate the economy, a prominent analyst has said, on projects like urban infrastructure. Photo: AFP

Published: 8:30pm, 21 Oct 2024

China should roll out more stimulus measures “as soon and quickly as possible” to counter the possibility of a downward spiral where insufficient spending and dwindling income feed into one another, a government adviser has urged.

New government debts to be raised next year – including treasury bonds, local special-purpose bonds and off-budget debt sales – could exceed 12 trillion yuan (US$1.67 trillion), said Zhang Bin, deputy director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.

“In the past, every increase in aggregate demand was inseparable from an increase in government spending, because it is a fast variable that can quickly change the situation in the short term,” he said at an October 20 webinar organised by China Macroeconomy Forum.

Zhang, an advocate for aggressive interest rate cuts, was one of several economists who spoke at a symposium on May 23 in east China’s Shandong province with President Xi Jinping in attendance.

As the world’s second-largest economy has seemingly lost momentum since the second quarter of the year, Beijing has rolled out a set of “incremental policies” to achieve the country’s annual target for economic growth, “around 5 per cent”.

Over the past few weeks, state agencies with economic portfolios have taken turns giving high-profile press conferences. Though all have stayed tight-lipped about the specific scale and timeline of a stimulus plan, the policies they have announced suggest a more active approach to spending by the central government, particularly on large-scale urban renewal projects and debt relief for local governments.

One reason for the lack of a hard figure could be the legal process of approval; any increases to the fiscal budget or bond quota require assent from the National People’s Congress, the country’s top legislature.