China Approves Bill for Local Government Bond Issuance

SINGAPORE/SHANGHAI (Reuters) – China’s top legislative body approved a bill on Friday permitting local governments to issue 6 trillion yuan ($838.8 billion) in bonds over three years. This move aims to swap off-balance sheet or "hidden" debt as part of efforts to stimulate the sluggish economy.

The standing committee of the National People's Congress (NPC) sanctioned the bill during a meeting held from November 4 to 8.

Finance Minister Lan Foan hinted at further stimulus measures, though he provided few specifics.

While the announcement aligned with market expectations, investors had anticipated more robust actions to invigorate weak consumer and corporate demand.

U.S.-listed shares of Chinese firms dropped in pre-market trading, and sectors in Europe exposed to China also declined. The offshore Chinese yuan fell about 0.4% to 7.1746 per dollar.

Comments on the Announcement:

Mark Williams, Chief Asia Economist, Capital Economics, UK:
"Unless there’s more to come later today, this fiscal announcement is disappointing for those seeking substantial stimulus. The most significant takeaway was the commitment to support state purchases of land and unsold properties from developers, which is essential for stabilizing the property market."

Carlos Casanova, Asia Senior Economist, UBP, Hong Kong:
"We expected a more incremental stimulus; however, this meets market expectations. The actual size needed is around 23 trillion yuan, significantly more than the approved amount. We likely won’t see immediate fiscal stimulus targeting consumption."

Lynn Song, Chief Economist for Greater China, ING, Hong Kong:
"This aligns with my expectations but markets seem disappointed, anticipating a larger policy if Trump won the U.S. election. Nevertheless, this doesn't signify the end of policy support."

Xing Zhaopeng, Senior China Strategist, ANZ, Shanghai:
"The absence of direct fiscal stimulus indicates that policymakers might be reserving room for the future impact of Trump. The 6 trillion CNY swap is positive but insufficient to address local debt risks."

Huang Xuefeng, Research Director, Shanghai Anfang Private Fund Co:
"There’s nothing that surpasses expectations; the funds merely replace hidden debts, providing little direct support for GDP growth."

Dong Baozhen, Chairman, Lingtong Shengtai, Beijing:
"This news is beneficial for banking stocks as it alleviates risks to the banking sector, easing concerns for investors."

Zhiwei Zhang, Chief Economist, Pinpoint Asset Management, Hong Kong:
"The debt swap policy is vital for alleviating local government debt burdens, and forward guidance indicates increased fiscal support next year."

Conclusion

The bill aims to address local government debt while signaling potential future stimulus to bolster China’s economy.