Economists urge Beijing to leverage low prices to boost demand
AgenciesBeijing should expand central government borrowing and accelerate local debt restructuring, as China’s relatively low price levels offer a rare window for stronger fiscal s...
Prominent Chinese economists are urging Beijing to take advantage of the country’s low price levels to bolster demand through increased fiscal support. Yu Yongding, a former member of the Monetary Policy Committee of the People’s Bank of China, stated that China currently enjoys the lowest price levels compared to the rest of the world. He emphasized the need to seize this fleeting opportunity, as prices elsewhere are significantly higher and inflationary pressures are spreading globally.
Yu warned that once this window of opportunity closes, it will not reopen. If inflation begins to rise and prices increase, it will become much more challenging to implement expansionary fiscal and monetary policies. To support infrastructure investment, which historically drives economic growth and stimulates consumption, additional borrowing could be beneficial.
Li Xunlei, chief economist at Zhongtai Financial International, echoed this sentiment, arguing that China has room to expand government borrowing. He highlighted that previous increases in government debt have not led to notable inflationary pressures. Li suggested that the central government should be the primary entity expanding borrowing, rather than local authorities, given their already substantial debt levels.
He pointed out that local government debt has not been as effective in generating economic returns due to their high debt burdens.
The concern over local government debt remains a significant issue for China's economy. By the end of 2023, Beijing had identified 14.3 trillion yuan ($2.14 trillion) in hidden local government debt, with a target to address the liabilities by 2028. Li stressed that the immediate priority should be reducing local governments' financing costs and debt pressures through debt swaps.
He noted that existing fiscal tools, such as special bonds, have become less effective due to strict project requirements, which hinder local-level officials from finding suitable investment projects. This weakness is reflected in the 7.2% decline in overall fixed-asset investment in the first eight months of 2026 compared to the previous year.
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