Eyeing US election, China considers over $1.4 trillion in extra debt

China is considering approving next week the issuance of over 10 trillion Yuan ($1.4 trillion) in extra debt in the next few years to revive its fragile economy, a fiscal package which is expected to be further bolstered if Donald Trump wins the US election, said two sources with knowledge of the matter.

China’s top legislative body, the Standing Committee of the National People’s Congress (NPC), is looking to approve the fresh fiscal package, including 6 trillion yuan which would partly be raised via special sovereign bonds, on the last day of a meeting to be held from November 4-8, said the sources.

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The 6-trillion-yuan worth of debt would be raised over three years including 2024, said the sources, adding the proceeds would primarily be used to help local governments address off-the-books debt risks.

The planned total amount, to be raised by issuing both special treasury and local government bonds, equates to over 8 per cent of the output of the world’s second-largest economy, which has been hit hard by a protracted property sector crisis and ballooning debt of local governments.

Reuters is confirming for the first time that the Chinese authorities are contemplating approving the 10-trillion-yuan stimulus package, an amount that financial analysts have said in recent weeks they expect Beijing to consider.

The spending plans suggest that Beijing has switched into a higher stimulus gear to prop up the economy although it’s still not the 2008-like bazooka that some investors have been calling for.

The central bank in late September announced the most aggressive monetary support measures since the COVID-19 pandemic. The government followed up weeks later by flagging more fiscal stimulus without specifying financial details of the package, stoking intense speculation in global markets about the size of the new spending.

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The sources who have knowledge of the matter declined to be named due to confidentiality constraints.

The State Council Information Office and the news department of the NPC Standing Committee did not immediately respond to Reuters requests for comment.

The sources cautioned that the plans are not finalised yet and remain subject to changes.

“The current policy priorities appear to focus first on addressing local government hidden debt, followed by financial system stability, and then on supporting domestic demand,” said Tommy Xie, head of Greater China Research at OCBC Bank.

China’s top legislative body generally holds its meeting every two months – in the second half of even-numbered months. As per the parliament’s 2024 work agenda, released in May, a standing committee session was planned for October.

The forthcoming meeting was initially planned for late October before being rescheduled to early November, said one of the sources.

The meeting’s timing, which coincides with the week of the US presidential vote on November 5, offers Beijing greater flexibility to adjust the fiscal package including the total size, based on the election outcome, said the sources.

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Beijing may announce a stronger fiscal package if Trump wins a second presidency as his return to the White House is expected intensify the economic headwinds for China, the two sources said.

Republican candidate Trump has gained in recent polls to erase much of the early advantage of his Democratic opponent, Vice President Kamala Harris. Trump has vowed to impose 60 per cent duties on imports from China.