China plans more fiscal stimulus as economy outlook darkens

BEIJING: China’s state media says local governments can sell more than US$229bil (RM1.02 trillion) in bonds to fund infrastructure investment and plug budget gaps, a further move to shore up an economy hit by worsening coronavirus outbreaks and a property slump.

The reports came alongside a raft of bad economic news this week: Covid cases reached a three-month high, suggesting more lockdowns are likely; real-time data indicated property sales continued to fall this month; weak economic data on Monday signalled a slump in domestic spending; and heat waves caused energy shortages in several provinces, forcing factory shutdowns.

Economists are turning even more bearish, with Goldman Sachs Group Inc lowering its projection for gross domestic product growth to 3% from 3.3% while Nomura Holdings Inc slashed its forecast to 2.8% from 3.3%.

That’s below the 3.8% consensus in a Bloomberg survey of economists and far away from the government’s original target of around 5.5% set for the year.

China’s growth in the second half is likely to be “significantly hampered” by the zero-Covid policy, as well as a “deteriorating property sector, local governments’ worsening fiscal conditions, and a likely slowdown in export growth, according to Nomura economists led by Lu Ting in a note.

Monetary stimulus came in the form of a surprise interest rate cut early this week.

But the relatively small size of the cut prompted calls from economists for more easing, including more rate cuts and reductions in the reserve requirement ratios of banks.

Fiscal stimulus has been centred on boosting infrastructure investment and giving local governments more resources to do that.

The China Securities Journal reported on its front page yesterday that local governments could utilise some of the 1.55 trillion yuan (RM1.02 trillion) of unused bond quota from previous years.

That could be topped up by an unspecified amount from next year’s quota in advance, the Shanghai Securities News reported Luo Zhiheng, chief economist at Yuekai Securities Co, as saying.

The third quarter will be an “important window” for sales of additional local government special bonds which are mainly used to fund infrastructure spending, the Shanghai Securities News cited Zhang Yiqun, a member of the Society of Public Finance of China as saying. — Bloomberg

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