China extends lifeline to local governments but holds off on big stimulus

livemint.com:

Subscribe to enjoy similar stories. China’s top legislative body gave its green light for local governments to swap some of their mounting off-balance-sheet debts but stopped short of new fiscal stimulus measures to revive the struggling economy.

After a five-day meeting, the Standing Committee of the National People’s Congress on Friday approved the issuance of 6 trillion Chinese yuan worth of local government special-purpose bonds, equivalent to about $837 billion, to replace off-the-books debt that had piled up over the years to levels that have worried many economists. The newly-approved debt, to be issued over the course of three years, will bring the upper limit of outstanding local-government special-purpose bonds to 35.52 trillion yuan by the end of 2024, Xu Hongcai, a deputy director of the NPC Financial and Economic Affairs Committee, said during a briefing on Friday.

Separately, Chinese Finance Minister Lan Fo’an said at Friday’s briefing that, over the next five years, local governments will be able to tap an additional 4 trillion yuan worth of special-purpose bonds—originally mainly issued for infrastructure projects—to replace off-the-book debts. Collectively, officials say that the measures would replace 10 trillion yuan worth of so-called “hidden debt" at the local government level, which Lan said stood at 14.3 trillion yuan at the end of 2023—though many private economists put the real figure at somewhere between the equivalent of 50 trillion yuan and 79 trillion yuan.

The debt was raised over many years by China’s local governments, primarily through affiliated financing vehicles, to fund infrastructure spending. Friday’s measures would put some of these hidden debts explicitly onto government balance