China Vows to Unleash More Borrowing to Spur Economy and Strengthen Banks

China’s powerful Ministry of Finance said on Saturday that it would borrow more to help cash-short localities and put more money in the hands of state-owned banks, an effort to address a severe slowdown in real estate and shore up crumbling consumer confidence.

Lan Fo’an, the finance minister, did not detail how much additional borrowing or spending the government was ready to commit to bolster weak domestic consumption, stabilize the country’s real estate market and strengthen banks. But he hinted that such a plan might still be under development.

“After due procedures, we will release the number to society,” he said.

The announcement followed a flurry of other economic stimulus moves last month that pushed stocks in China sharply higher, before they fell in the past week as investors grew concerned the government might not do enough to make a difference.

On Saturday, Mr. Lan and Liao Min, a deputy finance minister, said that the ministry planned to inject money into the country’s biggest banks, increasing the lenders’ ability to withstand losses and keep extending the credit that the economy needs for growth. Many investors believe the banks have sustained heavy losses on loans to companies and households throughout China’s housing market crash, although the banks have acknowledged few losses so far.

Mr. Lan repeatedly said the finance ministry wants local governments to raise money by selling assets. Many municipal governments have built office buildings, hotels and convention centers over the past three decades of often manic investment.

But with real estate prices plunging, localities have been reluctant to sell properties for what could be a fraction of what they paid for them. Mr. Lan also promised continued investigations of how local governments had spent their money, addressing a public perception that official misconduct may have contributed to the financial difficulties of many state-owned enterprises and localities.

Alicia Garcia-Herrero, the chief economist for Asia at Natixis, a French financial institution, said it was disappointing that the finance ministry had not provided numbers for the value of increased fiscal stimulus but noted that the tone of the remarks was favorable to providing support for the economy.

“They really want to show they are trying to rebalance the growth model, and that may take longer,” she said.

While localities and provinces have run up debts, the finance ministry has long opposed expanding the budget deficit of the national government. So it was a surprise when China’s best-known budget hawk, Jia Kang, a semiretired longtime finance ministry official, suggested in an interview with a state-controlled news outlet on Oct. 1 that the central government should borrow as much as $1.4 trillion through extra bond sales.

The money is needed to pay for long-term infrastructure projects, a key source of economic activity, as well as to help localities and provinces pay their bills, he told The Paper in Shanghai.

The country’s central bank and other financial regulators announced a series of measures to encourage bank lending on Sept. 24, including lower interest rates. The ruling Communist Party Politburo ordered further action at a meeting two days later.

China’s Communist Party wields absolute power over the country and the government, but the standing committee of the national legislature must sign off on any overall increase in spending beyond what has already been approved.

Wei Changhao, a fellow at the Paul Tsai China Center of Yale Law School, said the standing committee was expected to gather at the end of this month.

Consumer spending in China has visibly weakened in recent weeks. Many restaurants in big cities are nearly empty or have closed. While domestic rail and expressway traffic was very heavy during a weeklong National Day holiday at the start of October, nightly rates fell at many hotels as frugal travelers stayed with family and friends instead.

Apartment prices have fallen by a third or more in many cities. That has wiped out many families’ wealth because real estate has long been the most important investment, representing up to 80 percent of household savings in China. Many have responded to their loss of affluence by curtailing personal spending and stuffing as much cash as possible into bank certificates of deposit. Sales of Porsches and other luxuries have plunged.

Consumer confidence collapsed during Shanghai’s two-month Covid-19 lockdown in the spring of 2022 and has never recovered. The latest official measure of confidence, which the government posted online on Sept. 29 without comment, was dismal. It showed that consumers in China were less confident about the economy in August than in any month since 1990 except November 2022.

That month Covid cases spread out of control despite increasingly extensive municipal lockdowns. Many air and rail services were halted, expressways were dotted with Covid checkpoints and thousands of workers and students joined protests in major cities. Beijing soon undid nearly three years of strict pandemic measures, moving with an abruptness that is now being compared in China to the government’s shift toward economic stimulus.

But doubts have set in about the government’s response to economic weakness.

The CSI 300, which tracks large companies traded in Shanghai and Shenzhen, rose 27 percent from the start of the government’s push through last Tuesday. But it then receded 8.7 percent from Wednesday through Friday.

The procedurally simpler path for the ministry is to authorize the early issuance of debt to raise money that is then spent by local and provincial governments. Mr. Lan said on Saturday that special bonds would be issued to help local governments buy some of the country’s many vacant apartments for conversion into affordable housing.

Extra debt is usually earmarked in China for construction, like building roads and bridges. But many local and provincial governments are in desperate financial condition and need cash instead for expenditures like salaries for teachers and other civil servants, which have already been cut in many places.

Local and provincial governments used to rely heavily on frequent sales of state land to developers, but these have dried up during the housing market crash.