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China’s $10 Trillion Debt Issuance: Experts Raise Caution Amid Economic Stimulus Expectations

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China’s potential issuance of 10 trillion yuan in additional debt has sparked widespread discussions among economists, highlighting a delicate balance between stimulus and sustainable growth. As reported by Reuters, Beijing's initiative aims to boost a flagging economy with significant restructuring in local government debt and aid for the property sector. Analysts are assessing how this stimulus, driven by new bond issuances, will translate into real economic growth, noting that while the figures appear promising, the structural impact may remain limited.

Economists, including OCBC’s Tommy Xie, observe that the primary focus is on addressing hidden local government debt and stabilizing the financial system rather than stimulating direct consumption. Xie stresses that without shifting debt burdens to the central government, local governments may continue to struggle in expanding expenditure to benefit local economies. If this new debt is aimed more at covering existing liabilities than creating new demand, the true impact may fall short of expectations.

Gary Ng from Natixis expressed that while the scale of the package aligns with market expectations, it may act more as a “painkiller” than a substantial economic booster. Analysts agree that addressing idle housing and supporting infrastructure are necessary, but they doubt the new funds alone will be sufficient to significantly stimulate domestic consumption. Alvin Tan from RBC Capital Markets further noted that local government debt restructuring and banking recapitalization may have limited effects on consumer spending and market growth.

This careful approach contrasts with previous fiscal packages, where infrastructure and broader economic benefits were prioritized. However, economists point to significant changes, such as the potential for funding to decrease high-interest debt loads and ensure capital is more readily available for crucial sectors. As China navigates a complex economic environment, the focus on stability over aggressive growth reflects its intent to maintain cautious optimism in uncertain times.

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