China official says increasing debt level feasible and necessary

[BEIJING] China's plans to raise its debt level to stimulate demand and combat the economic effects of the coronavirus pandemic are feasible and necessary, a senior official at the country's top economic planning agency said Sunday.

The government's plan to raise its fiscal deficit and sell anti-virus government bonds are "special measures" in response to an unprecedented environment, and the scale of the borrowings takes into account both the economic impact and the need to control debt-related risks, according to Cong Liang, a senior official at the National Development and Reform Commission.

"An appropriate debt level can help with economic and social development, and sound economic and social development can help control the debt level," Mr Cong said at a press conference on Sunday. The government debt ratio was at 38.5 per cent of gross domestic product (GDP) by 2019, which is still relatively low globally, he said.

"We need to face realities and increase the debt level as appropriate," Mr Cong said.

China has pledged to significantly increase government borrowings this year and expand domestic demand as its income declines and economic growth slows to the lowest level in decades. Premier Li Keqiang pledged a fiscal deficit of more than 3.6 per cent of GDP, the highest level in at least a decade, in addition to about three trillion yuan (S$599.38 billion) of leftover funds, one trillion yuan of anti-virus debt and another 3.75 trillion yuan of special local debt to finance infrastructure construction.

The augmented fiscal-deficit ratio could reach about 11 per cent, if the government spends all that it plans to, up by 5.5 per cent of GDP compared with last year, according to economists at Standard Chartered.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

BLOOMBERG