Shannon Brandao
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"💯🏆FT [excerpt]: This month, #China’s new finance minister Lan Fo’an told markets what they had been waiting to hear — Beijing would boost budget spending to support a struggling post-pandemic recovery in the world’s second-largest #economy.
China is to deploy an arsenal of local and central government bonds, including a new Rmb1tn ($140bn) treasury facility — which will push Beijing’s budget deficit up to a two-decade high of 3.8 per cent this year, Lan said, to 'maintain fiscal spending intensity at an appropriate level'.
But while the message was welcomed by #investors, many analysts question just how much budgetary firepower Beijing really has to boost flagging #confidence and drive stronger economic momentum.
With economic growth slowing and a previous #investment-led development model losing steam, tax revenue is under pressure, analysts said. Beijing is also reluctant to borrow more, given that it has huge pools of bad #debt to resolve at the local government level.
'This is the longer-running story — that fiscal policy has been constrained for the last three to four years,' said Logan Wright, director of China markets research at Rhodium Group. '[And] it’s becoming more and more constrained in terms of what it can actually do.'
...IMF analysts also said in a paper released in August that China’s net financial position, taking into account its assets such as equity holdings, was among the top 15 in the world, at 7.25 per cent of GDP, though this has been steadily declining and the valuation of the assets were subject to uncertainty because of factors including liquidity.
Most analysts believe, however, that the central government’s real #debt obligations are much bigger than the numbers suggest. Beijing acts as the ultimate backstop for the country’s total government debt, estimated by Rhodium’s Wright at 142 per cent of GDP last year, including that held by the central government, policy banks, local governments and local government financing vehicles (LGFV) — off balance sheet entities that raise their own funds."
#news #business