China's Trillion-Yuan Debt Strategy: Balancing Act for Economic Revival

China plans to issue over 10 trillion yuan in extra debt to bolster its ailing economy. The focus is on restructuring local government debt and banking recapitalization, which may stabilize confidence but not significantly boost demand. Analysts emphasize the need for careful deployment and additional consumption support.

China is contemplating a major fiscal move by issuing over 10 trillion yuan in additional debt in coming years to revive its fragile economy, according to insider sources. The strategy involves addressing local government hidden debt and banking sector stabilization.

Tommy Xie, Head of Greater China Research at OCBC Bank, highlighted concerns over how the debt swap will be financed. The approach might not significantly enhance local government expenditure without a transfer of debt responsibilities from local to central authorities. Gary Ng from Natixis emphasized that while the package meets market expectations, it is more of a stabilizer than an economic amplifier.

Most analysts, including Louis Kumis from S&P Global, agree that the fiscal package, though substantial, will mainly focus on addressing local debts and banking issues. The consensus is that effective execution is crucial for the plan's success, as consumption support remains pivotal for a broader economic recovery.

(With inputs from agencies.)