China’s latest move to save local governments with a $1.4-trillion plan is a significant step in trying to revive the country’s economy. This plan, which includes allowing local governments to refinance massive debts, comes after a series of smaller steps taken earlier this year failed to provide the necessary boost to China’s slowing growth.
Annunci
The economic challenges facing China have been exacerbated by the ongoing COVID-19 outbreak, the falling real estate market, and the high levels of debt carried by local governments. The government has been borrowing heavily to fuel growth, leading to a situation where many cities are struggling to pay their bills.
In response to these challenges, the Chinese government announced a plan that will allow local governments to borrow an additional $838 billion over three years and another $539 billion over five years. This will help reduce the debt burden on local governments and provide them with more financial flexibility.
While this plan is a step in the right direction, economists warn that it may not be enough to address China’s deep-seated economic issues. A large part of China’s local government debt is kept off the books in special accounts, which means that the government’s official figures may not accurately reflect the true extent of the problem.
Victor Shih, a financial and political expert at the University of California, San Diego, pointed out that many local governments have seen their debt levels double in recent years. This has led to delays in payment of salaries for city and county-level workers, which, in turn, has dampened consumer spending and economic growth.
Despite the government’s efforts to address the debt issue, some experts believe that the plan may fall short of providing a lasting solution. Wang Tao, a top China economist at UBS, noted that while the plan will help with immediate debt servicing issues, it does not address the underlying problem of local government debt.
Furthermore, the recent stimulus measures introduced by China’s central bank, such as lowering interest rates and mortgage requirements, have had mixed results. While the stock market has seen a significant boost, investors and analysts remain cautious about the long-term impact of these measures.
Larry Hu, chief China economist at Macquarie Group, believes that more needs to be done to stimulate demand in the housing market. He argues that a larger stimulus package may be needed to jumpstart economic growth and address the root causes of China’s economic challenges.
Looking ahead, the upcoming Central Economic Work Conference is expected to provide more insights into the government’s economic policy direction. It remains to be seen whether further measures will be introduced to tackle the deep-seated issues facing China’s economy.
In conclusion, China’s $1.4-trillion plan to support local governments is a significant step towards reviving the country’s economy. However, it is clear that more will need to be done to address the underlying issues that are holding back growth. Only time will tell whether these measures will be enough to put China’s economy back on track.
