China Announces $1.4 Trillion Debt Plan After Trump’s Re-Election

China unveiled a 10 trillion yuan ($1.4 trillion) program to help local governments pay off debt and increase spending as its economy faces new risks from the re-election of Donald Trump, who has threatened to impose a 60% tariff on goods imported from the world’s second-largest economy.

Officials announced details of economic support measures on Friday, the last day of a week-long legislative meeting held by the National People’s Congress. China’s local governments will be allowed to issue 6 trillion yuan in new bonds over the next three years, which can help pay off so-called hidden debt, Finance Minister Lan Fo’an said at a press briefing. Another 4 trillion yuan in special bond issuances over the next five years can be used to solve the same problem, Lan added later.

Local government’s debts are weighing heavily on the Chinese economy. They have racked up 14.3 trillion yuan in off-balance sheet borrowing as of 2023, according to Lan. As those debts usually carry high interest rates, repayment obligations are squeezing local governments, already pummelled by dwindling sales from land auctions amid China’s prolonged property crisis. Paying off the hidden debt can free up resources, in turn boosting investment in areas including technology innovation and consumption support measures, said Lan.

Investors have wondered about the size of any fiscal support offered by Beijing and may be disappointed, says Shen Meng, managing director of Beijing-based boutique investment bank Chanson & Co., by WeChat. Investors were hoping that the financially strong central government could solve the hidden-debt problem by issuing more bonds itself instead of letting local governments refinance old borrowings with new.

What was also lacking in Friday’s announcement was any measures to directly support consumers and boost consumption, says Shen. Economists have long called on China to expand domestic consumption to buttress its slowing economy, especially as Trump’s threat of higher tariffs may deal a blow to bilateral trade.

Yet Beijing remains determined to grow its manufacturing sector. In October, China’s exports surged 12.7% year-on-year to $309 billion, beating forecasts by a large margin. Though exports remain a bright spot in an otherwise sluggish economy, the outpouring of products has led governments worldwide to react. The European Union, for example, recently decided to raise tariffs on China-made electric vehicles to as much as 45.3%.