(Bloomberg) — Chinese stocks and the yuan fell after authorities announced a total 10 trillion yuan ($1.4 trillion) program to refinance local government debt, indicating investors were unimpressed. the last attempt to support the economy.
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Futures on the FTSE China A50 Index fell more than 5% after an initial announcement highlighted a 6 trillion yuan package before paring losses. Authorities subsequently announced an additional 4 trillion yuan for the program.
Ahead of Friday’s press conference, the Chinese onshore benchmark CSI 300 Index ended the day 1% lower.
The yuan fell as much as 0.6% in offshore trading, weakening Asian counterparts such as the Australian and New Zealand dollars. Yields on Chinese 10-year government bonds have fallen to just 2.08%, a level not seen since September.
The weakness also sent ripples through global markets, triggering falls in oil and iron ore prices, reflecting concerns that a prolonged slowdown in the world’s second-largest economy will reduce demand for key commodities.
“Overall, the market could be disappointed by the lack of new stimulus,” said Xiaojia Zhi, head of research at Credit Agricole CIB. “Nevertheless, we expect a meaningful fiscal package in the coming years with additional spending of 12 to 13 trillion yuan over the next three years, aiming to offset the negative impact on growth from aggressive US tariff increases.”
The plan to defuse local government debt, long considered a time bomb in China’s financial system, came after a week-long meeting of the country’s top lawmakers, which concluded after the U.S. presidential election and the Federal Reserve’s last policy meeting.
Investors had hoped the high-level meeting would also roll out strong budget spending to counter the threat of tariffs under a second Donald Trump presidency. New stimulus measures could revive optimism that emerged on Thursday after October’s robust exports helped offset concerns about sluggish investment growth and weak consumption.
China will raise the debt ceiling of local governments to 35.52 trillion yuan, which will allow them to issue an additional six trillion yuan of special bonds over three years to swap hidden debts, the Xinhua News Agency reported on Friday. Authorities later said local governments will be able to tap an additional 4 trillion yuan in new special local bond quotas over five years for the same purpose.
