China to boost debt quota in bid to stimulate economy

China’s Finance Ministry said Saturday it would take the boldest measures in years to resolve local governments’ hidden debts, while rolling out more policies to support the nation’s ailing property market.

The pledges were made during a closely watched press conference, where investors had been anticipating more economic stimulus measures, especially after a briefing by China’s central bank last month revived market sentiment.

The latest Finance Ministry briefing may disappoint some, however, as it fell short of providing specific figures on a potential stimulus package Beijing plans to implement.

In Saturday’s briefing, Finance Minister Lan Foan said the debt quota for local governments would be increased by a “relatively large” amount to help replace their existing hidden debt.

Without providing specific numbers, Lan described the higher debt quota, still subject to legislators’ approval, as “a timely rain” to significantly alleviate pressure on local governments, calling it the boldest policy in recent years to address the debt overhang.

The minister said the government would also use tax policies as well as local government special-purpose bonds, a type of debt that is typically used to fund state-led infrastructure projects, to support the struggling property market. Lan said the ministry was considering more policy tools, including increasing the debt levels and fiscal deficit of the central government, without offering additional details.

Local government special-purpose bonds will be allowed to purchase unsold homes built by property developers as affordable housing, as well as to buy back idling land parcels, Liao Min, a vice finance minister, said in the briefing.

The government also planned to issue special treasury bonds to replenish core capital bases for the nation’s biggest state-owned banks, which played a big role in stimulating the cooling economy.

Last month, China’s central bank lowered interest rates for both existing and new mortgage loans to help revive the real-estate market. Following the government’s directive, Chinese banks have recently reduced interest rates for current mortgage borrowers by about 30 basis points, a move likely to further squeeze their profitability.

The Finance Ministry also said in Saturday’s briefing that it would double the number of scholarship slots for Chinese students and step up subsidized student loans this year, as part of its efforts to boost consumption among young consumers.