China will flood the market with securities to revive the economy with public spending. Will it work?
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To relaunch a certainly not brilliant economy, China is preparing a substantial fiscal stimulus, worth many billions of dollars.
Also, indeed above all, due to the continued application of the Covid Zero policy, with frequent and widespread lockdowns, it is unlikely that this year the target of 5.5% growth envisaged by the government will be reached, for which it is necessary to intervene with the drugs of the stimuli.
Bloomberg reports that the Chinese Ministry of Finance is considering allowing local governments to sell as many as 1,500 billion Yuan ($ 220 billion) of "special" local bonds in the second half of the year. Citizens said the bonds would support the struggling economy.
"Bond sales would be ahead of next year's quota," according to people who asked not to be named because it has not yet been officially announced.
China's slowdown recently forced the People's Bank of China to cut key interest rates for long-term loans in order to mitigate the housing slump and closures. Meanwhile, as doubts grow whether China will recover as it did in previous economic downturns, policymakers are poised for the second round of stimulus: infrastructure spending.
Although issuing local bonds – one of the very few sectors of the Chinese economy where there is excess debt capacity – is nothing new, this would be the first time that “the issuance has been accelerated in this way, underlining Beijing's growing concerns about the disastrous state of the world's second largest economy… Previously local governments did not start selling debt until January 1st, when the new financial year begins ”.
China is desperate to offset downward pressures on the economy by restoring its old pattern of increasing infrastructure spending to cushion the economy in difficult economic times. A somewhat forced Keynesian policy, but not excessively exotic. If the country's legislative body approves the proposal, it will add to the 1.1 trillion yuan ($ 164 billion) of new infrastructure support presented last month.
Economists polled by Bloomberg predict the economy will grow around 4.1% this year, missing Beijing's 5.5% growth target. It appears that the acceleration of growth is a move by the government to compensate for the collapse of the economy.
While it is normal practice for local governments to make proposals for the following year, this process normally kicks off in the last quarter of each year, one of the people said. Some provinces have been told to start new projects when possible, although construction was originally scheduled to start next year. -Bloomberg
At the news, the stock market recovered and went green. A signal that the whole economy is also seeing a relaunch of public spending. The problem is the quality of the investments that will have to be made, at least in the medium term.
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The article China will flood the market with securities to revive the economy with public spending. Will it work? comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-cina-inondera-il-mercato-di-titoli-per-rilanciare-leconomia-con-la-spesa-pubblica-funzionera/ on Thu, 07 Jul 2022 19:41:59 +0000.