China is mulling raising its infrastructure spending by a trillion yuan, or $137bn, to accelerate the economy’s recovery from its long period of covid restrictions, Bloomberg reports.
The money would be borrowed and could raise the country’s deficit above the cap Beijing imposed in March, Bloomberg said, adding deliberations are continuing.
China aims to keep its official deficit — which excludes local government debt — under 3% of GDP.
But economists at domestic think tanks and global consultancies have questioned whether that is feasible since China has to maintain its 5% growth target to keep the economy functioning smoothly.
Commentators have raised concerns over local government debt in China.
Reuters reported in August that after years of over-investment in infrastructure, falling returns from land sales, and high covid costs, economists were warning that municipal debt now posed a “major risk to China’s economy”.
The plans considered by the Ministry of Finance and the National Development and Reform Commission would be subject to approval by the State Council and legislators.
The Chinese government has stepped up stimulus in recent months by lowering interest rates, increasing support for housing sales and household consumption, and accelerating the issuance of special local government bonds.
By raising the budget deficit ceiling, the government can sell more general-purpose bonds to fund infrastructure construction, and reduce the interest payment pressure on local authorities, which mainly rely on costly special bonds for such funding.