When China reported faster-than-expected economic growth for the third quarter of this year, some analysts felt a twinge of concern. They worried that China’s rulers might now rest on their laurels. Rather than pressing on with efforts to revive demand, policymakers might instead wait and see if they had already done enough. The growth target for this year is, after all, only 5%. And the central government likes to keep its fiscal powder dry.
This fear was allayed on October 24th when officials approved the sale of an extra 1trn-yuan ($137bn) of central-government bonds. The sale will force the central government to revise its official deficit for the year from 3% of gdp to a hefty 3.8%. As a consequence, the headline deficit in China’s year of reopening will be bigger than it was in 2020, the year of its first lockdowns.
The money will be spent on helping local governments cope with natural disasters, such as recent floods. It will help relieve the strain felt by many cities and provinces. Revenues from land sales have been hit by a property slump. Off-balance-sheet debt has become harder to service, owing to a weak economy and wary investors. This year’s quota of “special” infrastructure bonds has been nearly exhausted. Help was therefore required to prevent sharp cuts in local-government outlays.
But even analysts who had expected stimulus of this size were surprised. Officials could have lifted the economy by pulling less conspicuous levers. They could, for example, have allowed local governments to issue more bonds or instructed state-directed “policy banks” to expand lending. By putting the 1trn yuan on its tab, Beijing signalled its support for growth. It was a statement as well as a stimulus.
The bond sale will occur under a new finance minister, Lan Fo’an, whose job was confirmed the same day. Mr Lan has served as governor of coal-rich Shanxi, but spent more time in Guangdong, a coastal powerhouse. His step up was, though, overshadowed by news that Xi Jinping had paid his first known visit to China’s central bank.
What prompted the visit? It may indicate that the country’s president is paying close attention to the economy at a busy time in the policymaking calendar. Officials will soon gather for a twice-a-decade conference on China’s financial system; another, annual meeting in December will help set economic policy for next year.
Mr Xi may have also wished to raise the stature of the central bank, which has recently lost some of its staff, regional branches and regulatory powers, even as it has been thrust into prominence by China’s economic struggles. It is fighting a two-front battle to prevent deflation by lowering borrowing costs, while at the same time trying to stop China’s currency, the yuan, falling too quickly against the dollar.
In most countries, a president’s visit to the central bank would not excite much comment or interest. Certainly, it would not overshadow the arrival of a new finance minister. But in China, the finance minister has little clout and the president has plenty. Not much the finance minister does compels attention. Nothing the president does escapes it. ■