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The Chinese government intends to inject 6 trillion yuan into the economy. Despite the announcement, investors remain concerned about the lack of clear information.
The China, largest emerging economy in the world, appears ready to take drastic measures in an attempt to reverse the economic slowdown that has worried global markets.
However, while news of a trillion-dollar fiscal package circulates, many details remain unclear, leaving investors cautious and raising questions about the real effectiveness of such actions.
What is Beijing really planning to avoid an economic collapse?
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According to recent information from local media, China can issue nearly 6 trillion yuan, equivalent to about US $ 850 billion, around R$4,7 billion, in special Treasury bonds over the next three years.
This measure aims to inject capital into the economy, which has been suffering from growth below expectations.
Despite the magnitude of this proposal, the announcement was not enough to encourage the country's stock markets, which were waiting for more details about the implementation and short-term effects.
Sources linked to the government said the money would go, in part, to help local governments deal with their unaccounted-for debts.
Still, the lack of a clear timeline has frustrated investors.
The Minister of China's Finances, Lan Foan, had promised a significant increase in debt, but did not provide specific information on when and how these measures would be implemented.
Speculation in the markets and distrust
The expectation surrounding the Chinese fiscal package has generated intense speculation in the financial markets.
Chinese stocks hit a two-year high after stimulus rumors but quickly backed off due to a lack of official details.
For analysts, as Xing Zhaopeng, from ANZ, the Chinese economy can still achieve a growth rate of around 5%, as long as the government efficiently implements the new stimulus.
“For a 5% growth rate, this should be enough,” says Zhaopeng.
The challenges for growth from China
Despite the optimistic projection, the recent economic data is worrying.
Reports on the trade balance and new lending, especially September's figures, fell short of expectations, raising doubts about China's ability to meet its 5% growth target in 2024.
The third quarter is expected to see growth of just 4,5%, down from 4,7% in the second quarter.
A recovery, however, is expected by the end of the year, with the stimulus propelling the economy to growth of 4,8% throughout 2024, according to a survey by Reuters.
Furthermore, China faces deflationary pressures, which could make the recovery scenario even more difficult.
Authorities, aware of these risks, announced measures to support the real estate sector and monetary policies at the end of September, in an attempt to strengthen the economy.
In a meeting of the politburo, Communist Party leaders reaffirmed their commitment to “necessary spending” to resume growth.
Rising debt and pressure on local governments
According to International Monetary Fund (IMF), China's total public debt, including local governments, reached 16 trillion dollars, representing 116% of GDP the country.
The central government has resisted significantly increasing its leverage, but pressure to stimulate the economy could force Beijing to reconsider that stance.
Second Xia Haojie, an analyst at Guosen Futures, said without decisive action from the central government, private investment could remain weak as local governments are burdened by massive debts and businesses struggle amid a slowing economy.
Uncertainty about the future from China
With a possible issuance of 6 trillion yuan in bonds and the expectation of growth still at 5% for the coming years, the China is at an economic crossroads.
While fiscal stimulus is an essential strategy to avoid a slowdown, markets remain skeptical about the effectiveness of such measures without a detailed implementation plan.
Investors are hoping Beijing will soon reveal more information about how it plans to spend this huge sum and when the results will start to show.
The big question now is: will the Chinese government be able to stimulate the economy effectively or will the burden of public debt sink growth expectations?
