DETAILED stimulus policies, including proactive fiscal expansion, are likely to be rolled out to address China’s local government debt issue and facilitate a steady economic recovery, as China’s top legislature is set to convene a highly anticipated session next week. The Standing Committee of the 14th National People’s Congress will convene its 12th session from Monday to Friday in Beijing, and analysts said the meeting is widely expected to flesh out details of the fiscal package, including a swap program for local government hidden debt, and sales of government bonds to inject capital into banks. Vice-Minister of Finance Liao Min said during the World Bank’s 110th Development Committee meeting last week in Washington, D.C., that China will leverage more fiscal firepower to strengthen its countercyclical adjustments. Countercyclical adjustments are macroeconomic tools used to neutralize possible negative effects of economic cycles. Liao said that details of China’s fiscal initiatives would be announced after the conclusion of the meeting of the NPC Standing Committee, as fiscal policy in China requires going through legislative procedures. Through government spending, China aims to catalyze investment from the private sector and shore up consumer spending, thereby increasing effective demand, Liao said, adding that the country is confident of achieving its 5% annual growth target. In October last year, China’s top legislature approved a plan to increase treasury bond issuance by 1 trillion yuan (US$140 billion). Earlier this month, Finance Minister Lan Fo’an said at a news conference that the Central Government plans to significantly increase the debt ceiling to conduct a one-time swap of local governments’ existing hidden debt. This policy is the largest support measure introduced in recent years to aid the debt resolution process, and is pending legislative approval, Lan added. The local government debt quota, currently at around 46.79 trillion yuan, will be raised substantially, according to Wang Qing, chief macroeconomic analyst at Golden Credit Rating International. The quota increase will pave the way for the issuance of large-scale special local government refinancing bonds in the fourth quarter, which is estimated to reach around 2 to 3 trillion yuan and will be used to swap out the existing hidden local debt. Meanwhile, analysts said the current round of fiscal initiatives also include measures to replenish bank capital, which will boost the lending and bond-purchasing abilities of large commercial banks, with the aim of driving these major banks to support the real economy. (SD-Agencies) | 