BEIJING (Reuters) – China’s stimulus efforts could come with a cost and they must be carried out alongside reforms to ensure sustainable economic growth, Liu Shijin, a former central bank adviser, said in remarks published on Wednesday.
“Stimulus could come with a cost and we should combine stimulus with reforms,” Chinese media outlet Yicai quoted Liu as saying at a forum on Tuesday. Liu said funds should be used for enhancing areas that are critical for long-term economic development.
China should prioritise improving basic healthcare services for the country’s 300 million internal migrant workers as it faces a significant public healthcare shortfall, Liu said.
On Tuesday, Reuters reported that China is considering approving next week new debt issuance of more than 10 trillion yuan ($1.4 trillion) to help tackle hidden local debt and fund buybacks of idle land and reduce a giant inventory of unsold flats, in coming years.
Analysts expect such efforts to be a stabiliser for the economy rather than the instant growth booster that markets have craved.
China is struggling to tackle a debt overhang from previous stimulus. In 2008-2009, a 4 trillion yuan spending package largely shielded China’s economy from the global financial crisis but saddled local governments with mountains of debt.
Liu said last month that China could issue ultra-long-term treasury bonds within two years to generate at least 10 trillion yuan worth of stimulus to the economy, according to state media.
At a key meeting in July, Chinese leaders outlined reform steps ranging from developing advanced industries to improving local government finances, but it remains unclear on how quickly such steps will be implemented.
China needs to expand its middle class group from around 400 million, currently about a third of the population – to 800-900 million in the next decade by speeding up urbanisation and addressing disparities in urban-rural public services, Liu said.
But Liu cautioned against stimulus through “helicopter money,” or direct cash handouts for residents, arguing this would primarily benefit wealthier residents, while low-income groups would see minimal relief given their basic needs.
($1 = 7.1231 Chinese yuan renminbi)