China NPC Approves $839 Local Govt Debt Swap Plan
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China NPC Unveils Plan to Cut Down Public Debt
By Raisina Correspondent
New Delhi, November 8: The Standing Committee of the National People’s Congress of China approved proposal for a $839 billion (6 trillion yuan) debt swap plan to shore up the financial strength of the local governments. The decision has come amid speculations that China would unveil an aggressive stimulus package to boost the economy.
China’s Xinhua News Agency reported that the debt swap plan is aimed at helping local governments to refinance their existing debt. The global rating agencies have long been warning against mounting debt of the local government.
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China last month had unveiled a slew of stimulus packages, beginning with rate cut. China has been asking the local governments to take risks to boost the economy.
The local government debt swap plan has two after the US President Elections’ outcome. Republican Donald Trump emerged victorious by trouncing his rival and the US Vice President Kamala Harris.
China is wary of protectionist Trump who in 2017 had started a trade war with Beijing by slapping a slew of tariff on Chinese imports. However, experts have said that the debt swap plan is far too short of the expected stimulus package.
The debt swap plan of the local governments was approved by the Standing Committee of the National People’s Congress on Friday. China observers have argued that the debt swap plan by China is to boost the confidence of the investors.
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As per details available so far, China is to step up limit for local government special bonds to 35.52 trillion yuan from 29.52 trillion yuan by end of this year. Also, the plan entails bid to bring down the local government hidden debt from 14.3 trillion yuan to 2.3 trillion yuan by 2028. The debt of the local governments had spiked to 14.3 trillion yuan.
Lan Fuan, the Minister of Finance of China, told local reporters that the additional six trillion yuan local government debt limit will be arranged over three years (2024-2026). The approval has come above estimates.
Goldman Sachs in a report had expected that the China NPC may approve 1 to 2 trillion yuan of additional ultra-long-term central government special bond issuance quota. Experts have stated that Trump Presidency may force China to devalue Yuan to make its export competitive as Washington may intensify trade war with Beijing next year.
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