China's decision to raise the local government debt limit by 6 trillion yuan, its largest recent debt-reduction measure, has left markets underwhelmed. Originally anticipated to be as high as 15 trillion yuan, the actual stimulus fell significantly short of analysts' and social media expectations.
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Critics argue that the 6 trillion yuan injection barely covers a year's worth of interest payments on the vast, complex web of explicit and hidden local government debt, which exceeds 100 trillion yuan in total. This plan, in their view, offers no substantial debt reduction and does little to address underlying economic challenges.
Some commentators suggest that if the government intends to expand the money supply to address debt, a bolder approach—such as a massive injection of 10 trillion yuan or more—would be more effective. They contend that the cautious pace leaves creditors uncertain, and could increase the risk of a capital pullout.
I anticipate a major sell-off in the Chinese market come Monday.
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