China to Boost Debt Finance Ministry signaled Saturday that the country will assume some of the local governments’ biggest opaque debts in years, even as it brings out more policies that will support the nation’s struggling housing market.
The pledges were made during a highly-publicized press conference as investors were expecting more stimuli to be introduced after the China central bank briefing a month early stimulated the economy.
Disappointed by today’s briefing
Some may be disappointed by today’s briefing by the Finance Ministry, which did not offer precise numbers on the stimulus package that Beijing is preparing.
During Saturday’s briefing, Finance Minister Lan Foan said, the local governments’ debt quota will be raised by a “relatively large sum” to assist in repaying a portion of their hidden debt.
Lan did not disclose an exact figure but referred to the higher debt quota, which is pending legislative approval, as a ‘rain god’ to substantially release pressure from local governments, describing it as the year’s most daring policy for dealing with the debt overhang.
The minister said that tax and other measures would also be applied as well as local government special-purpose bonds which is a kind of debt that can be used only to support state-led projects this time for the property market. Lan also suggested that the ministry is now discussing more policy tools, such as raising the level of central government debt and the fiscal deficit, although did not elaborate.
Issued by local governments
Special-purpose bonds issued by local governments can be used to buy the unsold homes built by developers for affordable housing purposes as well as to repurchase idle plots of land, Liao Min, a vice finance minister, said in the briefing.
The government intended to launch new extra treasury bonds to restore core capital funds for the five largest state-owned banks to become one of major drivers that stimulated the cooling economy.
China to Boost Debt central bank last month decided to cut the interest rates on both new and outstanding mortgage loans as it seeks to stimulate demand in the real estate sector. Chinese commercial banks have in recent past cut current mortgage interest rates by about 30 basis points as per a new government directive which would hurt their profitability.
The Finance Ministry also said in Saturday’s briefing that the government will raise the number of scholarships for Chinese students and increase subsidized student loans this year as part of an effort to spur consumption of young consumers.
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