On November 9, 2024, China announced a substantial £1.1 trillion ($1.39 trillion) bailout package aimed at reviving its economy amid increasing global trade pressures, particularly from the United States following Donald Trump's re-election. The National People's Congress made this announcement on November 8, 2024, highlighting the urgency of addressing local authorities' hidden debts, which total approximately £14 trillion Renminbi [ba889c5]. This bailout is one of the largest measures undertaken for local government debt in recent history, allowing local governments to issue bonds over a three to five-year period, with £660 billion in new bonds authorized [ba889c5].
In conjunction with the bailout, China's central bank, the People's Bank of China (PBOC), is also focusing on enhancing the 'intensity and accuracy' of its monetary policies. Governor Pan Gongsheng announced plans to support high-quality economic development and maintain liquidity in response to recent credit data showing slight improvements [1db3bc06]. An additional bond quota of 6 trillion yuan (approximately $833 billion) was approved by the National People's Congress Standing Committee, which aligns with the government's efforts to stabilize the economy [1db3bc06].
The plan includes raising the local government debt ceiling by six trillion yuan (over $830 billion) and aims to ease repayment strains on local authorities by issuing local government special-purpose bonds [52ece4c5]. By the end of 2024, the special debt ceiling is expected to rise from $4 trillion to nearly $5 trillion, with over $110 billion reallocated annually from 2023 to 2028 to swap out hidden debts, cumulatively replacing $560 billion [52ece4c5]. This initiative is expected to enable local governments to borrow $838 billion over the next three years and an additional $539 billion over five years, potentially saving local governments around 600 billion yuan in interest payments [6a6b0242][4ecfc0a4].
Despite the scale of the bailout, experts have expressed disappointment over the lack of direct support for household consumption, raising concerns that without structural reforms in the housing sector, the fiscal package may not effectively shield the economy from external shocks [ba889c5]. Economists warn that while this plan may provide temporary relief, it risks merely postponing the underlying debt issues, similar to previous significant interventions, such as the $1.6 trillion refinancing in 2015 [4ecfc0a4].
M1 money supply has fallen by 6.1% year-on-year, while M2 has grown by 7.5%, indicating a mixed economic environment [1db3bc06]. Total social financing increased by 27.06 trillion yuan (US$3.76 billion) from January to October, down by 4.1 trillion yuan from last year, reflecting a cautious credit environment [1db3bc06]. The backdrop of these measures includes a series of emergency meetings held by the Politburo, where officials discussed the urgent need for economic stimulus to counteract recessionary pressures. Beijing had previously announced plans to inject approximately 3.8 trillion yuan (around $500 billion) into the economy, which includes consumer subsidies and support for banks and property developers [fb79eb14].
The announcement of the debt swap initiative follows a meeting of lawmakers and is seen as a direct response to concerns over economic stability and potential trade tensions with the incoming U.S. administration under president-elect Donald Trump, who may impose tariffs of 60% or more on Chinese goods starting September 2025 [73f89d90]. The CSI 300 index has risen over 20% since late September, yet shows signs of investor disappointment following the latest announcements [4ecfc0a4].
In addition to financial measures, the government is also focusing on improving consumer confidence and spending. Major foreign investors have reported increased consumer spending and easier access to capital following the stimulus measures rolled out since late September 2024. Harley Seyedin, president of the American Chamber of Commerce in South China, noted a rise in consumer confidence, while European companies see potential for structural changes in the market [8e603e25].
China's share of U.S. imports has been declining since 2018 due to tariffs, and following Trump's election victory, the country announced a $2.1 trillion debt reduction package. The Consumer Price Index slipped 0.3% in October, indicating deflationary pressures, while potential job losses and business closures are anticipated due to slowed U.S. capital investments. The renminbi continues to devalue against the U.S. dollar, and there are speculations that China may flood the U.S. market with goods before tariffs are imposed [0cbf3e84].
As the National People's Congress prepares to discuss further fiscal stimulus plans in November, the implications of these economic measures could extend beyond China's borders, particularly in the context of potential trade tensions with the incoming U.S. administration [32caa15c]. The balance between immediate economic stimulus and long-term structural reforms will be crucial in determining China's path forward amidst these unprecedented challenges [fb79eb14].