Less than 48 hours after Donald Trump’s resounding electoral victory in the United States was confirmed, China has stepped up its efforts. The Asian giant knew that a return of Trump to the White House would intensify the constant tensions between the two powers, in particular because of the 60% customs duties that the Republican candidate wants to impose on imports from China. In anticipation of this scenario, it was to be expected that Beijing would begin to build stimuli to defend against this “storm” coming from Washington. The first salvo arrived this Friday with a package intended to help local authorities suffocated by debt. However, as has happened in recent months, the announcement by the authorities They left the markets cold and expect more ambition on the part of leaders when it comes to relaunching a weakened China after covid and which now risks suffering more from the American blow.
China announced a program ten billion yuan ($1.4 trillion) For refinance local government debt. Beijing will raise the debt ceiling of local governments to 35.52 trillion yuan, allowing them to issue an additional 6 trillion yuan in special bonds over three years to pay off hidden debt, the Ce news agency reported. Friday. China. Officials later said local governments would be able to use an additional total of four trillion yuan in a new tranche of five-year special local bonds for the same purpose.
The plan approved by the Standing Committee of the National People’s Congress This is broadly in line with what economists expected, as China attempts to limit financial risks and support growth. This exchange is “an important political decision that takes into account the national and international development environment, the need to guarantee stable economic and fiscal functioning and the real development situation of local governments,” the authorities said. Bloomberg.
China’s economy grew 4.6% in the third quarter, the weakest pace since March last year, calling into question Beijing’s ability to meet its annual expansion target of around 5%. This slowdown has led policymakers to adopt more favorable policies, such as interest rate cuts and aid to the stock and housing markets. Trump’s electoral victory fueled the calls on Beijing to strengthen its policies aimed at stimulating domestic demand to offset a possible drop in exports due to the president-elect’s tariff threats.
The plan approved by the Standing Committee of the National People’s Congress comes close to the upper range of most economists’ predictions, as China seeks to limit financial risks and support growth. This is the first time since 2015 that the authorities have raised the debt ceiling for local authorities in the middle of the year. The fact that figures of this magnitude were expected and that leaks in the press spoke of this range caused disappointment on the markets.
THE Chinese stocks and the yuan fell after authorities announced a 10 trillion yuan program. Futures on the FTSE China A50 Index fell more than 5% after the decision was announced. This weakness also impacted global markets, causing drop in oil and iron ore pricesreflecting fears that a prolonged slowdown in the world’s second-largest economy could reduce demand for key raw materials.
“Overall, the market could be disappointed by the absence of new stimulus measures,” analyzes Xiaojia Zhi, research director at Crédit Agricole CIB. “Nevertheless, we expect a significant fiscal package in the coming years with additional spending of 12-13 trillion yuan over the next three years, aiming to offset the negative growth impact of aggressive U.S. tariff hikes.
“When it comes to larger government stimulus, the Chinese government has made it clear that it will do whatever is necessary to revive the economy. However, Trump’s victory could mean more stimulus and a response faster,” said Sandy Pei, an analyst at Federated Hermès. Despite this, he said, “this is not the first time that US tariffs have been a potential problem and, this time, Chinese companies are better prepared. We have seen many diversify their production base by establishing factories in Southeast Asia, Mexico and Eastern Europe. Chinese exports continued to grow; to the United States have slowed, but in other parts of the world they have increased and high value-added products continue to perform well in international markets.
“Even though Trump is widely expected to raise tariffs during his second term, the question of when and how he will do so is still up for debate. We believe that the 60% pricing proposal can be a starting point for negotiations instead of a fixed figure; “You may remember that the first trade war saw a truce after China agreed to increase imports of U.S. agricultural products,” says Lynn Song, an analyst at ING.
The Dutch bank’s research department sees two paths to reducing the trade deficit between the United States and China: “Either by reducing Chinese exports to the United States or by increasing Chinese imports of American products. inflation and job creation, we assume the latter would also be a positive outcome for the Trump administration. »
