Last Friday, on November 8, 2024, China announced an ambitious 10 trillion yuan ($1.4 trillion) debt package. After the unveiling, Chinese technology stocks fell sharply. Alibaba (BABA), Baidu (BIDU), and JD (JD) are some of the firms that traded lower.
Up Fintech (TIGR) and Futu Holdings (FUTU) fell by more. The stock will fall by more today after China’s government debt refinancing failed to impress markets.
The purpose of the debt package is to assist local governments in their financing problems. The central government also wants to fix its economic downturn. Stock market participants widely expected China would need an aggressive plan after the U.S. elected Donald Trump. They expect more tariffs, trade wars, and export restrictions in 2025.
China’s debt plan to fix the government’s balance sheet is not big enough. The government spent far more than the tax revenue it took in. The fiscal shortfall will widen further as real estate prices fall by more. The Chinese homebuyer is unwilling to buy a second home when prices keep falling.
The package increases China’s local government debt quota by six trillion yuan over three years. It will use the funds to buy back hidden debt. This hidden debt is a major flaw in the plan. The size of the debt could be larger than anyone expects.
Investors may trade stocks like Netease (NTES), Bilibili (BILI), or iQiyi (IQ). But without China’s economic fundamentals changing, the rallies may fade just as fast.