Exclusive: Eyeing US election, China considers over $1.4 trillion in extra debt over next few years, say sources

Two informed sources have revealed that China is contemplating the approval of than 10 trillion yuan (equivalent to $ 11 billion ) in additional debt, over the coming years to stimulate its struggling economy. This fiscal stimulus package is likely to receive support if Donald Trump emerges victorious in the upcoming U.S. Presidential election.

Chinas main legislative group known as the Standing Committee of the National Peoples Congress (NPC) is set to give the light to a new financial plan during a meeting scheduled from November 4th to 1%. Reports indicate that this plan includes 6 trillion yuan that will be funded in part through sovereign bonds.

Sources mentioned that a total debt of 6 trillion yuan will be accumulated over a span of three years up, to 2024 with the main intention being to assist governments in managing unofficial debts efficiently.

The intended overall sum to be raised through the issuance of government and local municipality bonds amounts to more than 8 percent of the output of the worlds second largest economy that has been significantly affected by a prolonged crisis, in the real estate industry and increasing debts of local authorities.

Reuters has officially announced that Chinese officials are considering the approval of a 10 trillion yuan stimulus package. An amount that financial analysts have been discussing as something Beijing may be looking into in weeks.

Beijings recent budget proposals indicate a shift towards an aggressive stimulus strategy to support the economy though it falls short of the substantial measures akin, to those seen during the 2008 financial crisis that certain investors had been advocating for.

In September the central bank unveiled its most aggressive monetary support measures since the onset of the COVID‐19 pandemic.Another weeks later the government hinted at additional fiscal stimulus without providing specific financial particulars regarding the package.This move has sparked speculation, in global markets regarding the scale of the upcoming expenditure.

The individuals with information, on the subject chose not to disclose their identities for reasons related to confidentiality.

The State Council Information Office and the news division of the NPC Standing Committee did not respond promptly to requests for comment, from Reuters journalists.

The informants advised that the proposals are still, in the works and may undergo alterations.

Tommy Xie from OCBC Bank mentioned that the current focus of policy priorities seems to be, on tackling debts in local governments as a primary concern before moving on to ensure financial system stability and supporting domestic demand.

Chinas main legislative body typically convenes every two months during the part of even numbered months according to the parliaments work plan, for 2024 unveiled in May. With a standing committee session scheduled for October.

One of the sources mentioned that the upcoming meeting was originally scheduled for the end of October but was later rescheduled for November.

Sources mentioned that the timing of the meeting aligns with the U.S presidential election week on Nov 5th can provide Beijing with room to tweak the fiscal packages details such, as its overall size depending on the election results.

According to two sources with the matter in Beijings corridors of power and economic circles in Chinas capital city may consider unveiling a more robust fiscal stimulus plan in case President Trump secures a second term, in office as his potential re election is predicted to amplify the economic challenges faced by China.

In the polls the Republican nominee Donald Trump has narrowed the lead of his Democratic rival Vice President Kamala Harris. Trump has promised to levy a 60% tariff, on goods imported from China.

In its economic plan review session the NPC Standing Committee is anticipated to approve a sum of nearly 4 trillion yuan, in special purpose bonds to be utilized for acquiring unused land and properties within the coming five years as reported by insider sources.

Local authorities could potentially increase this sum in addition, to their yearly allocation that primarily supports infrastructure investments.The allocation was set at 3..trillion yuan for the year and 3..trillion yuan in the upcoming year of 2023.

Local authorities have taken this step to improve their capacity, in handling land distribution and ease financial strains on both local governments and real estate developers.

Special purpose bonds serve as a method for Chinese local governments to secure off budget financing for designated policy initiatives, like infrastructure projects.

If the NPC Standing Committee decides to approve these measures all at rather than gradually implementing them as planned by authorities; it may lead to a total stimulus package exceeding 10 trillion yuan " they suggested."The yearly issuance of 2 trillion yuan, in fresh central government debt highlights Beijings pressing need to bolster the economy.

In the part of 2023 China released 1 trillion yuan, in government bonds to improve flood defenses and achieve its goal of around 5% economic growth.

At the beginning of the year in Beijings agenda was the issuance of 1 trillion yuan in sovereign debt; however it is anticipated that this amount will likely be raised due to a slowdown in growth that has deviated from projections and economists suggesting the possibility of a more prolonged structural decline, in progress.

Nonetheless the proposed budget allocation is not as robust as the measures taken in 2008 during the global financial crisis, by Beijing when their fiscal stimulus of 4 trillion yuan made up 13 percent of the GDP at that time.

The additional funds sparked a frenzy in the real estate market. Resulted in unrestricted lending, to local government financing entities that municipalities utilized to circumvent official borrowing limits.

According to insider sources with the matter at hand and part of the broader financial expenditure plan in place in China involves the potential approval of additional stimulus measures totaling at minimum one trillion yuan aimed at stimulating consumption through incentives, like trade ins and the replacement of consumer goods.

One of the sources suggested that a trillion yuan could be raised through special treasury bonds to inject capital into major state banks as per another source familiar, with the situation.

Louis Kumis from S&P Global, in Hong Kong stated that substantial financial aid is expected to boost optimism and contribute positively towards expansion.

"It appears that there is enthusiasm for spending indicating that significant progress, in the economic growth forecast is unlikely or that the threat of deflation has not been completely eliminated."