China to Ramp Up Spending to Revive Its Economy

China plans to significantly increase government debt issuance to stimulate economic growth, focusing on subsidies for low-income households, support for the property sector, and capital injections into state banks. 

The announcement reflects the need to address economic challenges like weak consumer confidence and the ongoing property downturn, which have pressured China’s target of 5% growth for 2024.

The world’s second-largest economy faces deflationary risks as it grapples with reduced export demand amid global trade tensions. Recent data has fallen short of expectations, intensifying concerns about longer-term structural issues. 

In response, Chinese stocks initially surged by 25% following a Politburo meeting in September, which hinted at more aggressive fiscal support. However, market enthusiasm waned as investors awaited concrete details on the government’s spending plans.

China’s Public Investment Fund aims to issue special sovereign bonds worth approximately $284.43 billion, with half allocated to help local governments manage debt burdens. 

Despite these efforts, analysts argue that deeper reforms are necessary. While fiscal measures primarily target investment, diminishing returns and mounting local government debt—now estimated at $13 trillion—raise concerns about long-term sustainability. 

Additionally, challenges like low wages, high youth unemployment, and limited household spending, which remains below 40% of GDP, underline the need for a shift from investment-driven growth toward boosting consumption. Calls for additional stimulus from foreign companies in China underscore the urgency of addressing these structural imbalances.