China unveils $1.4 trillion fiscal package amid rising U.S. trade tensions

According to the Financial Times, China has unveiled a massive fiscal package worth 10 trillion yuan (approximately $1.4 trillion) aimed at shoring up its ailing economy. This comprehensive plan comes at a time when trade tensions between China and the U.S. are escalating, particularly following Donald Trump's election. The Chinese yuan weakened against the U.S. dollar in response to the announcement, reflecting market anxiety about potential tariffs and their implications for China’s economic future.

The fiscal package, which was revealed by the National People's Congress, targets local governments, struggling with "hidden" or off-balance-sheet debts accumulated from years of infrastructure and property investments. The Chinese government will allow local authorities to issue new bonds for debt restructuring, focusing on alleviating Rmb14 trillion in debts. Despite these measures, many investors were left disappointed, expecting more support for consumer spending, which has been sluggish in the world’s second-largest economy.

According to experts cited by FT, China’s broader economic challenges—including a slumping housing market and the potential impact of U.S. tariffs—have left the country’s finances vulnerable. Analysts note that these new stimulus efforts, although significant, may not be enough to counterbalance the broader pressures facing the economy. As U.S. tariffs could threaten China’s GDP, many believe Beijing may hold back additional measures for future use in response to worsening trade tensions. Some economists, like Larry Hu from Macquarie, have tempered expectations, emphasizing that China’s primary goal is to maintain GDP growth rather than pursue aggressive economic stimulation.

This fiscal move reflects China’s delicate balancing act: addressing pressing local government debts and navigating the challenges posed by a global economic slowdown and strained trade relations with the U.S. However, as market reactions show, the measures have so far failed to inspire confidence in the country’s ability to stimulate the economy in the face of such challenges.