China unveils sweeping local government debt swap to lift troubled economy

• The move will increase the “local government debt limit by six trillion yuan.”
• The debt ceiling will be raised every year from 2024 to 2026.
• FM says a total of $558 billion of “hidden debt can be replaced”.
  

BEIJING: China on Friday unveiled some of its most ambitious plans in years to wipe out local government debt and boost its economy, after lawmakers met to discuss the possibility of intensifying trade tensions with the US president-elect. Donald Trump.

Local governments in China are facing a mounting debt of $5.6 trillion, according to Beijing, raising concerns about broader economic stability.

The International Monetary Fund (IMF) put the figure at $8.4 trillion last year.

Policymakers gathered in Beijing this week voted to swap their hidden debt – defined as borrowing that a government owes but is not disclosed to its citizens or other creditors.

The move will increase “the local government debt limit by six trillion yuan, which will be used to replace existing hidden debts, freeing up space for local governments to better develop the economy and protect people’s livelihoods,” state radio station CCTV he said.

The move was taken after “fully reviewing the international and domestic development environment, ensuring the smooth operation of the economy and finances,” Finance Minister Lan Foan told a news conference in Beijing.

The debt ceiling will be raised every year from 2024 to 2026 “to support local governments in replacing any kind of hidden debt,” he said.

A total of $558 billion of “hidden debt is replaceable,” Lan explained.

And $112 billion “will be raised by new special local government bonds each year for five consecutive years to supplement state financial resources,” he added.

Lawmakers also approved a new energy law to promote “carbon neutrality” as Beijing moves forward with its pledge to decarbonize the economy by 2060.

Trump’s account

Officials were watching the US vote closely this week as they gathered in the Chinese capital for a meeting of the country’s top legislature.

Trump promised during his campaign to impose punitive tariffs on Chinese goods that threaten further grief for the world’s second-largest economy, which is already grappling with a protracted housing crisis and sluggish consumption.

Observers say Beijing could seek to soften that blow with a long-awaited “bazooka stimulus” for the economy — though the details of the caution may still take time.

This week’s meeting, originally scheduled for late October, has likely been postponed to give policymakers a chance to address a potential Trump victory,” said ING Greater China chief economist Lynn Song.

Beijing began unveiling a series of measures in September aimed at boosting economic activity, including interest rate cuts and the easing of some home-buying restrictions, but analysts have so far balked at the lack of detail.