China's Economic Path: A Sizeable Fiscal Package is Key

China should issue at least 10 trillion yuan (US$1.4 trillion) worth of long-term special treasury bonds to boost consumption and help local governments pay off debt, according to leading Chinese economist Mao Zhenhua, founder of the China Chengxin Credit Rating Group. This bold proposal, reported by the SCMP, would lift China's official fiscal deficit ratio to 3 percent of its gross domestic product this year.

Mao argues that the proceeds from the bonds could be channeled to subsidize household spending through consumption vouchers, repay outstanding debts to the private sector, thereby improving local governments' credit records. Tax reductions for businesses should also be considered, with some of the proceeds allocated to cover revenue lost due to tax cuts.

This call for a significant fiscal package comes at a crucial juncture. Recent data paints a mixed picture of the Chinese economy. While GDP grew 4.9% in the first quarter of 2024, this was slower than expected, and concerns remain about a possible slowdown in the second half of the year. The recent [Insert specific recent data on industrial production, retail sales, or unemployment here] further emphasizes the need for proactive economic measures.

The issue of local government and state firm debt has become a major concern. Reports indicate that cash-strapped entities are struggling to pay contractors and suppliers, impacting small and medium-sized companies despite calls from the central government to clear overdue payments. This echoes the [mention any recent data on non-performing loans or corporate debt in China].

Mao believes that fiscal policy changes would be more effective than relying solely on the stock market to benefit households and businesses. While the stock market is performing well, it does not directly address the immediate needs of the majority of the population.

While Chinese academics and policy advisors agree that Beijing needs to expand its fiscal policy to meet its “around 5 percent” gross domestic product growth target for 2024, opinions are split on how best to utilize the additional funds.

Some argue that the money should be directed towards infrastructure projects, citing the potential for long-term economic growth and job creation. Others advocate for direct transfers to consumers, emphasizing the immediate boost to consumption and the potential to stimulate the economy through increased demand.