BEIJING -- The Chinese government is ramping up stimulus plans to keep the economy moving along amid mounting pressure, planning more than 2.5 trillion yuan ($370 billion) in tax cuts and infrastructure spending while also encouraging wary banks to extend more credit.
The package, which has been taking shape since last fall, amounts to around 3% of gross domestic product. The 4 trillion yuan that the government pumped into the economy after the 2008 global financial crisis equated to 13% of GDP, suggesting that Beijing still has plenty of firepower at its disposal.
The government is doing all it can to keep economic growth, which slowed to a 28-year low of 6.6% in 2018, from cooling further. But its efforts could be hampered by concern about the country's massive debt overhang, which spurred a deleveraging drive that contributed to last year's slowdown.
The National Development and Reform Commission approved 1.16 trillion yuan in infrastructure projects in the last three months of 2018, with 783.8 billion yuan worth coming in December alone -- more than the previous 11 months combined. China's construction industry grew 6.1% on the year in the October-December quarter, a two-year high and a sharp increase from 2.5% in July-September.
Rail investment is playing a central role. State-owned enterprise China Railway plans to invest a record 850 billion yuan this year.
Local governments typically start offering bonds to fund such projects after the National People's Congress meets in March. But some floats were brought up to January this year, likely to ensure that construction continues leading up to and following the Lunar New Year holiday in February. Issuance of bonds for infrastructure projects is expected to jump 60% this year, which risks adding to an already hefty debt burden.
On the tax front, China lowered personal income taxes and levies on small and midsize enterprises this month, and Finance Minister Liu Kun has said a cut to the value-added tax is under consideration as well.
Tax and fee savings are seen totaling an estimated 1.5 trillion yuan this year, up from 1.3 trillion yuan in 2018. But concerns have been raised that this money will just go toward paying down debt rather than circulate back into the economy.
The stimulus plan also includes efforts to help smaller lenders and businesses suffering from a credit crunch.
Bank of China said Friday that it had raised 40 billion yuan by issuing perpetual bonds, a special type of bond with no maturity date. The People's Bank of China, the nation's central bank, provided an indirect guarantee.
The PBOC plans to offer similar help to smaller regional banks to promote lending to cash-starved small and midsize businesses. One advantage of perpetual bonds is that they can be offered by regional and rural banks that often find it difficult to raise funds.
The central bank has given banks more cash to work with by cutting the reserve requirement ratio -- the level of deposits they must hold -- by a total of 3.5 percentage points. Yet lenders, still worried about their capital levels, remain leery of lending to small and midsize businesses, prompting the PBOC to seek other ways of helping them replenish their balance sheets.
There is even speculation that the central bank could buy exchange-traded funds to prop up share prices.
State-owned enterprises, local governments and individuals remain mired deep in debt as a result of the post-crisis stimulus. China's debt-to-GDP ratio surged to 253% last year from 144% in 2007.
The Ministry of Finance is cracking down on "hidden debt" incurred by local governments through financing vehicles and the like. Such off-the-books borrowing forces governments to apply a portion of the funds raised through bond issues toward repaying past debt, leaving them with that much less money for actual economic development.
Premier Li Keqiang has repeatedly asserted that Beijing will not simply throw money around. The government has yet to relax restrictions on real estate sales for fear of abruptly bursting the bubble in that market.
"In any event, growth must not drop below 6%," said a government economist. If the Chinese economy does expand less than 6% in the first half of 2019, the government may pour even more money in, potentially bringing the total close to the 4 trillion yuan of the post-crisis stimulus.