China fires first shot to shore up economy against any surprises

Global markets quickly shifted focus from the US presidential election to the keenly anticipated news two days later of fiscal stimulus for China’s economy. If there is disappointment at the outcome it is unrealistic. The 6 trillion yuan (US$837 billion) debt-swap plan announced by the National People’s Congress (NPC) Standing Committee, the top legislative body, is a timely, measured and targeted approach.

Some investors and market watchers were unimpressed that the headline number fell short of the 10 to 14 trillion suggested. This is partly due to expectations of a shock-and-awe rescue package similar to that for the global financial crisis in 2009. But this does not take account of very different internal and external factors that China faces now.



An additional 6 trillion yuan bond quota to resolve the “hidden” local government debt is in fact still a big step. More importantly, officials made clear China has room for further stimulus and more measures may be expected. The focus of the 6 trillion yuan plan goes beyond relieving the local-government debt burden; it is calculated to re-energise the sector, a key player in Beijing’s economic plans.

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