China may issue more debt as it fights for growing its economy due to the lockdowns in response to Covid-19. In the current weeks, the country has signaled that it still wanted to get its 5.5% growth target this year as an effort to keep the country’s economy not going down.
On April 29, China’s Politburo organized a meeting to send “strong signal that policymakers are committed to this year’s GDP target despite the downside risks from Covid-19 disruptions and geopolitical tensions,” written by ANZ Research analyst in a note on the same day.
On Friday, Chinese state media wrote the details of the report about Politburo meeting, at which the officials promised to give more support for the economy to fulfill the country’s economic growth target for that year. The support would include the tax cuts and rebates, infrastructure investment, measures of boosting consumption and other relief measures for manufacturers.
That’s considered as foreign investment. Banks are estimating the growth’s possibility to fall significantly below 5.5% number, with production activity collapsing in April. According to some market watchers, this means Chine will probably rack up more debt as it keeps trying to meet its growth targets.
ANZ Research’s senior China economist, Betty Wang and Senior strategist, Zhaopeng Xing said that China may be borrowing from the future and incur more debt in order to attain 5.5% target. Meanwhile, the chief Asia Pacific economist, Andrew Tilton, told CNBC last week at Goldman Sachs that China is set to ramp up infrastructure expenses.
According to Beijing’s point of view, it would be more desirable to increase such fiscal spending and relax debt restrictions than to provide monetary easing, they told CNBC’s “Squawk Box Asia.”
However, one interference to the government’s efforts on the infrastructure investment would be the Covid-related restrictions that are opened to public everywhere, Tilton added.
He said, “There are a lot of restrictions should around the country even in some cases in places where there aren’t any Covid cases – more precautionary in nature. He explained again that one of the obstacles to the campaign of infrastructure is going to keep the Covid restrictions targeted only in places where they are needed most.
In this regards, Tilton said the government has one option to take into consideration. That is to issue the local government bonds. The bonds will be issued by units arranged by the local governments to provide the public infrastructure projects with the fund.
Meanwhile, Beijing has tried to cut the debut even before the pandemic attacked the country. The property sector was aggressively targeted by rolling out the “three-red lines” policy with the purpose of reining in developers after years of growth powered by the extreme debt. For a firm cash flow, assets and capital levels, the policy positions a limit on debt.
However, that made the country experience debt crisis late last years as Evergrande and other developers began to default on their debt.