China Unveils $1.4 Trillion Debt Swap, Saves Stimulus for Trump
China gave indebted local governments a 10 trillion yuan ($1.4 trillion) lifeline but stopped short of unleashing new stimulus, preserving room to respond to a potential trade war when Donald Trump takes office next year.
Officials unveiled details of a program to refinance “hidden” local debt onto public balance sheets at a press briefing in Beijing on Friday. Funds for that program — telegraphed last month but without a price tag or timeframe — will be provided through 2028, they said, after the move was authorized by the nation’s top lawmaking body.
While policymakers didn’t announce measures to directly stimulate domestic demand, Finance Minister Lan Fo’an promised “more forceful” fiscal policy next year, signaling bolder steps could come after Trump’s inauguration in January. The US president-elect has threatened 60% tariffs on Chinese goods that could decimate trade between the world’s largest economies, and blight exports that have been a rare bright spot for the Asian nation this year.
Response to Trump's victory
“Policymakers probably saw no need for a robust response to Trump’s victory before he takes office, given the relatively restrained post-election market response,” said Duncan Wrigley, chief China economist with Pantheon Macroeconomics. “Next year is a different matter, but officials will take that as it comes.”
China’s boldest stimulus blitz since the pandemic has sent onshore shares soaring by about 30% since September, taking the pressure off officials to act immediately. Those rate cuts, along with stock and housing market support pledges, have put President Xi Jinping back on track to hit this year’s growth goal of around 5%, without taking on piles of extra debt to reflate the economy.
Investors had waited for weeks for the fiscal side of that campaign, with media reports stoking expectations for more spending to stabilize the property market and boost consumption. Disappointment was palpable at the start of the presser, with the offshore yuan weakening as much as 0.6% before paring the decline to 0.3% as the full scale of the package was known.
