Recently, the Chinese government launched a 10 trillion yuan economic revitalization plan to reduce debt pressure on local governments and stabilize the economy. For a long time, the large-scale debt problem of local governments has cast a shadow on economic growth. With the changes in the international environment and the uncertainty of domestic economic recovery, the introduction of this large-scale stimulus measure has also been highly anticipated. Faced with the sluggish real estate market and external economic pressure, the government hopes to support local governments to continue to provide public services, promote infrastructure construction, and restore economic vitality through this policy.

Local debts are piling up, and infrastructure investment is unsustainable

Over the past decade, local governments have invested in infrastructure through debt in order to promote regional economic development. However, this development model has gradually revealed its drawbacks - debt has accumulated to an unsustainable level. According to statistics, the scale of local government debt has exceeded 60 trillion yuan, becoming a major burden on economic growth. At the same time, local fiscal conditions are becoming increasingly tight, and some regions are even unable to pay public service expenditures and employee wages, highlighting the severity of economic imbalances and debt pressure.

The shrinking real estate market has exacerbated economic weakness

The real estate market plays an important role in China's economy, and the continued downturn in recent years has made the overall economic situation more complicated. Since the outbreak, housing prices have continued to fall, homebuyers' confidence has been frustrated, and many families have adopted a wait-and-see attitude towards future consumption. The wealth accumulation of Chinese families is highly dependent on the stability of the real estate market. However, in the past three years, housing prices have fallen by an average of 10% per year, mortgage defaults have increased, and real estate credit risks have intensified. These situations have not only weakened the willingness of families to consume, but also led to a sharp decline in land transfer income that local governments rely on, further increasing fiscal pressure.

Contents and key measures of the stimulus plan

The core of this revitalization plan is to provide local governments with refinancing authorization, allowing them to issue bonds in the market to repay existing debts, thereby alleviating short-term fiscal pressure. In addition, the People's Bank of China has taken interest rate cuts in September and reduced the minimum down payment ratio for home purchases in an attempt to alleviate the sluggish real estate market. At the same time, local governments have successively introduced measures to relax restrictions on home purchases and encourage residents to buy houses to activate demand in the real estate market.

Although these measures have injected liquidity into the local economy and helped maintain economic growth, they cannot fundamentally eliminate the debt burden. Scholars point out that these temporary funds have eased fiscal pressure, but if the economy is to be stable for a long time, fundamental structural adjustments to the local debt model are still needed to ensure long-term development.

International environment and policy urgency

Sino-US trade relations also have an impact on the launch of this revitalization plan. The United States has recently stated several times that it will take trade restrictions on Chinese goods. This has brought uncertainty to China's export industry and affected the attractiveness of local governments to foreign investment. The decline in international demand has put China under pressure to decline in exports, forcing the government to adopt more active stimulus policies to cope with the combined impact of external risks and internal debt problems.

Hu Weijun, chief economist of Australia's Macquarie Group, believes that the current economic stimulus is not enough to fundamentally reverse the weak demand in the real estate market. If the economy is to be revitalized and the 5% economic growth target is achieved, the government may need to increase fiscal support. The Central Economic Work Conference to be held in December is expected to bring further policy support, but many experts believe that capital injections alone may not solve the structural problems of the Chinese economy.

Long-term way to reduce the burden of local debt

Experts point out that although short-term stimulus policies can alleviate urgent needs, the government must carry out structural reforms to completely solve the local debt problem. Strengthening the audit and supervision of local government debt by establishing a more transparent debt management system may be the key to solving the debt problem in the future. An economics professor at Renmin University of China pointed out that the government could consider reducing its reliance on infrastructure investment moderately and shifting resources to supporting the development of small and medium-sized enterprises and emerging industries to achieve high-quality economic growth.

For the problem of local debt, China can also start with optimizing the income structure. In the past, local governments relied on land transfer income as the main source of income, but in the case of a sluggish real estate market, this model is obviously unsustainable. The government may promote tax reform by strengthening transfer payments to local finances to create more stable sources of income for local governments.

Short-term measures and long-term planning in parallel

The 10 trillion yuan revitalization plan has undoubtedly brought a breathing space for local governments and provided financial support for infrastructure construction and social security. However, to fundamentally resolve the problem of local debt and achieve sustainable economic growth, the Chinese government needs to promote deeper structural adjustments in the next few years. In addition to fiscal policies, measures such as accelerating industrial upgrading, enhancing scientific and technological innovation capabilities, and cultivating the domestic demand market are all effective means to stabilize economic growth.

Faced with an increasingly complex economic situation, China's revitalization plan needs to combine short-term measures with long-term reforms. While stimulating the economy, the government should continue to focus on optimizing the economic structure and enhancing the independence and sustainability of local finances, so as to ensure that the Chinese economy remains resilient against the backdrop of a global economic slowdown and embraces a more diversified development prospect. This move is not only a necessary measure to cope with current challenges, but also paves the way for the future of the Chinese economy.