Wang Yiming, a central bank advisor and former deputy director of the State Council Development Research Center, said China’s growth model based on debt-driven investment and land sales has become difficult to sustain.
The possibility that financial instruments will be reopened cannot be ruled out.
“The debt accumulated in the past is subject to huge repayments and risks, which is suppressing investment demand.” [that it has been funding]” Wang said at the 2024 China Bond Market Forum in Beijing on Friday.
In addition to fiscal expansion, China’s central bank will also step up support, said Zhang Ming, deputy director of the Institute of Finance and Banking, Chinese Academy of Social Sciences.
On January 2, the People’s Bank of China (PBOC) loaned 350 billion yuan (US$49.2 billion) to policy banks through the Supplementary Loan (PSL) facility promised in December.
However, the central bank did not say how the China Development Bank, Export-Import Bank of China and Agricultural Development Bank of China would use the loans.
Market stagnation is causing some Chinese developers to avoid paying contractors
Market stagnation is causing some Chinese developers to avoid paying contractors
“PSL [loan size] Yields in December were the third highest on record,” said Chan, who is also a speaker at the Bond Market Forum. “We believe there is a possibility that funds will be injected into the three major construction projects in 2024. We cannot rule out the possibility that financial instruments will be restarted.” [such as PSL]”
Launched in 2014, the PSL program helps central banks better target medium-term lending rates while increasing liquidity to specific sectors by providing low-cost financing to selected banks. The purpose is to China relied heavily on PSL loans to support its slum rehabilitation program from 2015 to 2018.
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Booms, busts, and borrowing: Has China’s housing market slumped?
Booms, busts, and borrowing: Has China’s housing market slumped?
On average, LGFVs pay 6-8% annual interest, while new refinance bonds pay just 3% or less.
Wang Tao, chief China economist at UBS investment bank Research, said he expected the central government, which has much lower debt levels, to provide clearer support. This could mean China’s fiscal deficit target will be set at 3.5-3.8% of gross domestic product (GDP), Wang said.
In addition to the 1 trillion yuan in special bonds starting in 2023, Wang estimated that China could sell another 1 trillion yuan in 2024, with local governments receiving a total of 4 trillion yuan in special bonds for infrastructure investment. It added that target bonds could be allocated.
“We also expect local government debt restructuring to continue, including extending loan terms, lowering interest rates, and issuing another 2 trillion to 3 trillion yuan in bond swaps to ease LGFV payment issues. ” said Mr. Wang.