In a bold move to bolster its struggling economy, China has approved a historic 10 trillion yuan ($1.4 trillion) debt package aimed at helping local governments replace their mounting hidden debt. Finance Minister Lan Fo’an announced the plan, which includes a 6 trillion yuan ($838 billion) debt limit over three years and a separate 4 trillion yuan ($558 billion) quota for local bonds over five years.
The move comes after years of pandemic controls and a real estate crisis drained government funds, leaving local authorities unable to provide basic services. With a growing risk of default, China is working to reduce its hidden debt, which currently stands at 14.3 trillion yuan ($1.99 trillion), with plans to trim it down to 2.3 trillion yuan ($320 billion) by 2028.
While the debt swap measures aim to stabilize the economy and reach this year’s GDP growth target of 5%, economists have expressed concerns that more aggressive policies will be needed to achieve long-term economic recovery, especially in light of the ongoing challenges posed by deflation. The announcement also comes amid rising political uncertainty, as the impending return of Donald Trump to the White House adds to China’s economic challenges.
Reuters, Bloomberg, CNBC, South China Morning Post, The Guardian, Xinhua News
