A top government adviser says that China should look to raise up to 5 trillion yuan (US$700.5 billion). It shall be from the sale of special bonds. The purpose is to stimulate the economy after the unprecedented impact of the coronavirus pandemic.
The funds created by the debt sale are necessary to drive investment and restore consumer confidence. Both of these had been ravaged by the health crisis. It would be in addition to already budgeted spending. Liu Shangxi, president of the Chinese Academy of Fiscal Sciences, told the same to a forum in Beijing.
In the first quarter of the year, China’s gross domestic product (GDP) fell by 6.8 percent. It is because of the widespread factory closures and citywide lockdowns. This, in turn, brought the nation’s retail, industrial, and entertainment sectors to their knees. It is its first decline since comparable records began.
After the lockdowns were lifted, there were some signs that China’s economic and social activity was returning to normal. However, the recovery has not been as robust as had been hoped. The more recent economic indicators have suggested the same.
In April, the official purchasing managers’ index for the manufacturing sector fell to 50.8. It was from 52 in March. It is mainly driven by a decline in new export orders. In 2019, exports accounted for 17 percent of China’s GDP.
Liu warns on the impact of the coronavirus pandemic. He said that its effects on China’s economy could last longer than first thought. He said that there was something of an illusion when the domestic epidemic was brought under control. It seemed that things would soon be back on track.
However, overseas orders have been canceled. The supply of raw materials and parts from overseas has been restricted. It is probably not a short-term situation. It will last at least to the end of this year.
He said that a sufficient policy effort is required to stabilize markets and supply chains. He considers it urgent. He compared the same to fire fighting.
Beijing had launched a massive stimulus program after the global financial crisis. So far, it has refrained from doing the same. To boost demand and investment, the central government announced a 4 trillion yuan stimulus package in November 2008. However, the spending spree also created huge amounts of debt.