Credit：Xinhua News Agency
The mainland China's SSE Composite Index fininshed 0.5% lower and the ChiNext index, which tracks stocks traded on the Nasdaq-style subsidiary of the Shenzhen Stock Exchange, fell 1.2% on Friday. The blue chip CSI 300 index of onshore stocks closed 1% lower and Hong Kong’s benchmark Hang Seng Index down nearly 1.1%.
The Nasdaq Golden Dragon China Index, which tracks 65 China-exposed U.S.-listed companies, settled more than 4.7% lower the same day, underperforming the stock market as the benchmark S&P 500 edged up almost 0.4% to its fifth record close this year. The American depositary receipts (ADRs) of Fangdd Network Group Ltd., operator of a leading online real estate marketplace in China, tumbled 21.7%. Exchange-trade funds (ETFs) tracking the investment in Chinese equities accordingly declined. The KraneShares CSI China Internet ETF and the Invesco China Technology ETF plunged 6.7% and 5.4%, respectively.
Yuan also lost ground. The offshore Chinese yuan retreated by nearly 1% to as low as 7.2094 per U.S. dollar Friday, erasing most of rally a day earlier. Yuan against U.S. dollar sank to 7.2132, the lowest since the start of August on Wednesday as Former U.S. president Donald Trump, who promised steep import taxes, including tariffs as high as 60% on Chinese-made goods, won the presidency.
Earlier Friday, the Chinese government announced a RMB10 trillion (US$1.4 trillion) debt package to refinance local government debt, as part of broader efforts to support a slowing economy and address new risks following Donald Trump's return to the White House.
China’s top legislature, the National People's Congress (NPC), approved a State Council bill on raising the ceiling on local government debt by RMB6 trillion (US$840 billion) to swap existing hidden debts , according to a press conference on Friday.
Under the new arrangement, the debt ceiling for special local government debt will be increased to RMB35.52 trillion yuan from RMB29.52 trillion by the end of 2024.
Also starting from 2024, China will set aside RMB800 billion from each year's new special-purpose bonds for local governments for five consecutive years, thereby providing debt relief to replace RMB4 trillion of hidden debts, Chinese Minister of Finance Lan Fo'an said at the press conference.
According to Lan, the new measures will add a combined RMB10 trillion to China's debt relief resources. Meanwhile, the RMB2 trillion of hidden debts resulting from housing improvement projects in run-down areas due by 2029 and beyond will be paid in accordance with the original contracts.
As a result, the amount of hidden debts that China's local governments need to deal with by 2028 is expected to drop from RMB14.3 trillion to RMB2.3 trillion, Lan said.
The Wall Street felt the latest debt package to ease local government financing strains underwhelming as it lacks any measures to direct stimulate the economy, namely, stimulus to boost demand. Many economists have long argued for stronger consumer stimulus, especially as China faces increasingly higher tariffs on its exports from Washington and other capitals in Europe and elsewhere.
“This is not the stimulus that markets were looking for at all,” Shehzad Qazi, managing director at the China Beige Book, a U.S.-based research firm, said in an interview on CNBC. “This is not stimulus to begin with. What they’re doing is recycling debt. I don't think this does anything to stimulate growth.”
Finance Minister Lan said at the press that more foreceful fiscal policy will come next year, without any further details. He also reiterated officials will issue policies to support state sector purchases of unsold apartments and reclaim undeveloped residential land from property developers, as well as replenish the capital of big state banks. But he didn’t provide details about these policies such as the size and timetable. Lan’s remark deemed a signal that China could take bolder steps after Trump’s inauguration in January.
"I don't think that we will see direct fiscal stimulus aimed at consumption anytime soon," said Carlos Casanova, Asia senior economist at UBP. Casanova speculated China will probably hold back some of that fire power until they have a better idea of what President Trump is planning.
Local debt resolution is a critical aspect of policy support, though it’s only part of a broader push that’s required to revive the economy, Bloomberg Economics' economists Chang Shu and Eric Zhu commented. “With this package, local officials may be able to start catching up on spending allocated in this year’s budget. To boost growth in a more sustainable way, other important aspects are likely to come, particularly more specific fiscal measures to support demand,” these economists said.
