China said it will "significantly increase" government debt, noting that they still have 2.3 trillion yuan available to spend in the last quarter of this year

China announced on Saturday that it plans to "significantly increase" government debt issuance to provide subsidies for low-income households, support the property market, and bolster state banks' capital, all in an effort to revive sluggish economic growth. While Finance Minister Lan Foan did not provide specifics on the size of the fiscal stimulus, he stated that China will introduce more "counter-cyclical measures" to address ongoing economic challenges.

Lan emphasized that China still has considerable room to issue debt and expand its fiscal deficit. His remarks come at a time when the world’s second-largest economy is grappling with deflationary pressures caused by a sharp downturn in the property market and weak consumer confidence. These issues have highlighted China’s over-reliance on exports amid a tense global trade environment.

A recent series of economic data has missed expectations, prompting concerns among economists and investors that China may not reach its 5% growth target for this year, with fears of a more prolonged structural slowdown. While officials have expressed "full confidence" in meeting the 2024 target, data for September—due to be released soon—is expected to show further economic weakness.

China’s fiscal stimulus measures have been a topic of global market speculation, especially after a Politburo meeting in September signaled urgency in addressing the country’s mounting economic headwinds. Following that meeting, Chinese stocks surged, with the CSI300 index reaching two-year highs, climbing 25% in just a few days. However, stocks later retreated as investors grew anxious over the lack of concrete details on the government’s additional spending plans.

Rong Ren Goh, portfolio manager at Eastspring Investments, noted that while meaningful measures were announced, investors were primarily focused on the scale of the stimulus. "Markets were set up to be disappointed by the absence of specific numbers," he said.

Last month, Reuters reported that China plans to issue special sovereign bonds worth approximately 2 trillion yuan ($284.43 billion) this year as part of its fiscal stimulus package. Half of these funds will assist local governments in managing their debt, while the other half will be used to subsidize purchases of home appliances and goods and provide monthly allowances of about 800 yuan ($114) per child for households with two or more children.

Bloomberg News also reported that China may inject up to 1 trillion yuan of capital into its largest state banks. However, analysts are skeptical about whether this will effectively boost weak credit demand. Additional debt issuance will likely require approval from China’s rubber-stamp parliament, expected to convene in the coming weeks.

In a related move, China's central bank unveiled its most aggressive monetary support measures since the COVID-19 pandemic in late September, including interest rate cuts and a 1 trillion yuan liquidity injection. These measures, aimed at stabilizing the property and stock markets, have lifted market sentiment but analysts argue that Beijing must also address deeper structural issues such as boosting domestic consumption and reducing reliance on debt-driven infrastructure investment.

China’s debt levels remain a significant concern. While the International Monetary Fund (IMF) estimates central government debt at 24% of GDP, overall public debt—including that of local governments—reaches approximately $16 trillion, or 116% of GDP. Despite these challenges, Lan expressed confidence in supporting local governments to resolve their debt issues, noting that they still have 2.3 trillion yuan available to spend in the last quarter of this year, including debt quotas and unused funds.