Coronavirus: China unveils US$500 billion fiscal stimulus, but refrains from going all-in

China will increase its budget fiscal deficit to a record 3.6 per cent of gross domestic product this year, up from 2.8 per cent in 2019

Beijing will also issue special treasury bonds for the first time since 2007 and increase the local government bond quota as it fights the pandemic

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Premier Li Keqiang announced details of a new economic stimulus plan at the National People’s Congress on Friday. Photo: Reuters

Published: 5:50pm, 22 May 2020Updated: 11:06pm, 22 May 2020

The Chinese government has unveiled a fiscal stimulus package of nearly 3.6 trillion yuan (US$506 billion), as Beijing tries to offset the economic shock caused by the coronavirus pandemic and prepare for an “unpredictable” path ahead.

Premier Li Keqiang announced details of the plan in his work report at the National People’s Congress on Friday, including an increase of the budget fiscal deficit to a record high of 3.6 per cent of gross domestic product (GDP), up from 2.8 per cent last year.

It is the first time the ratio has exceeded 3 per cent – a red line for decades – and will add an extra 1 trillion yuan to the budget to bolster the economy after it was lashed by the pandemic.

Beijing will also issue 1 trillion yuan of special treasury bonds for the first time since 2007, though these will not be included in the central government budget and therefore the deficit ratio. The local government special bond quota, another source of infrastructure funding, has been boosted by 1.6 trillion yuan to 3.75 trillion yuan for 2020.

The incremental amount [of fiscal stimulus] is small ... A bigger stimulus will only be seen when numbers are bad enough

Larry Hu

While the sum total of new spending and tax cuts is large, it fell short of expectations, reflecting Beijing’s concerns about overspending and worries about debt, analysts said.

“The incremental amount [of fiscal stimulus] is small,” said Larry Hu, chief China economist of Macquarie Capital. “Traditionally, China’s stimulus is not released at one go, but step by step … A bigger stimulus will only be seen when numbers are bad enough.”

The aggregate size of China’s total budget fiscal deficit, which includes the government budget deficit and off-budget debts, was about 8.3 per cent of GDP, above last year’s figure of 5.6 per cent, said Hu, adding market expectations were for a “more proactive fiscal policy”.