China’s Debt Gamble and Cautious Pivot Toward Stimulus

After weeks of intense anticipation, on Friday, November 8, 2024, China’s government unveiled additional details about the fiscal component of its stimulus policy package. Let’s review it.

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A Bold Move: The RMB6 Trillion Debt Swap

At the heart of the announced measures is the issuance of RMB6 trillion (approximately $835 billion) in government bonds over three years. This initiative, approved by the National People’s Congress, aims to restructure local government debt in three distinct phases:

1. Annual Debt Repayment: RMB2 trillion of hidden debt will be repaid annually for three years using proceeds from these bonds.
2. Interest Savings: By replacing higher-interest hidden debts with lower-cost government bonds, local governments are expected to save RMB120 billion annually—equivalent to less than 0.1% of the 2023 GDP. These savings represent the only direct fiscal relief provided in this package.
3. Extended Debt Refinancing: An additional RMB4 trillion of hidden debt will be refinanced over five years using existing local government bond quotas. This approach reflects continuity with practices already underway, such as RMB2.2 trillion refinanced in 2023 and RMB1.2 trillion in 2024.