China unveils $1.4tn package to shore up economy

China has announced a Rmb10tn ($1.4tn) budgetary package to assist shore up its faltering economy, as it braces for increased trade tensions with the US under Donald Trump.

Beijing has authorised China’s heavily indebted local governments to issue Rmb6tn in recent bonds over three years and reallocate a further Rmb4tn in previously planned bonds over five years to restructure their finances, officials announced at a press conference on Friday presided over by finance minister Lan Fo’an.

Officials did not announce additional measures to directly stimulate domestic demand, potentially disappointing markets that had been hoping the package would also assist consumers. But they added that they were “studying” extra measures to recapitalise large banks, buy unfinished properties and strengthen consumption.

China’s renminbi weakened sharply against the US dollar immediately after the announcement, with the onshore yuan falling as much as 0.4 per cent to less than Rmb7.17 to the dollar.

The country’s central lender on Thursday set its daily fix for the funds at its lowest level since last November, at Rmb7.166, as the dollar surged following Donald Trump’s win in the US presidential election.

The obligation relief measures, which pursue the announcement of a large monetary stimulus in September, had been expected even before Trump’s win, following a campaign in which he threatened to levy a 60 per cent tariff on Chinese goods.

But analysts declare China needs to urgently deal with problems dogging its domestic economy, including a prolonged housing slump that has dented household and local government revenues, before Trump’s tariffs hit its external sector.

If fully implemented without Chinese countermeasures, the Trump tariffs could knock several percentage points off China’s GDP at a instant when the economy is highly vulnerable, analysts said.

China’s manufacturing industries and exports have been a rare luminous spot for its economy this year, offsetting domestic weakness and helping Beijing arrive closer to hitting its growth targets.

Beijing is expected to announce additional back for the economy once Trump’s agenda becomes clearer in the coming months, analysts said.

There are signs the government’s monetary stimulus measures in September, which included gain rate cuts and back for the distribute and property markets, have started to have an impact on the economy.

The government has also accelerated pre-planned debt safety issuances for budgetary spending that had stalled during the year.

“There have been some early signs of a pick-up in domestic demand,” Gavekal China economist Wei He wrote in a note, pointing to indicators such as the October purchasing managers’ index.

“Housing sales are improving, the official PMI is rebounding and distribute prices have made handsome gains,” Wei added. 

Additional reporting by Arjun Neil Alim in Hong Kong