China announced a 10 trillion yuan ($1.40 trillion) debt relief package on Friday to help ease local government financial strains and stabilize its slowing economy, Reuters reports.
This package aims to address municipal debt by reducing “hidden debts” rather than injecting immediate funds into the economy. The package includes raising local government debt quotas by 6 trillion yuan over three years, allowing municipalities to use existing funds to repay debts, with an additional support of 4 trillion over five years from Beijing. China plans to reduce local government debt from 14.3 trillion yuan to 2.3 trillion yuan by 2028.
Local governments, facing high debt and falling revenues, have struggled to fund public services, exacerbated by a property crisis and declining land auction revenues. The IMF estimates China’s local government debts at around 60 trillion yuan, posing a challenge to growth.
The government also plans to support state purchases of unsold housing, reclaim undeveloped land, and expand subsidies for consumer goods, though direct consumer-focused stimulus remains limited. Some economists argue that more stimulus is needed to counter deflationary pressures, but China may hold back to assess Donald Trump’s trade policies before making further fiscal moves.
