China's Fiscal Strategy: Local Bonds to Strengthen the Real Estate Sector

China will allow local governments to issue special bonds in the future to support the troubled real estate sector and counteract economic downturns. This measure was recently announced by Finance Minister Lan Fo'an and aims to revitalize the real estate market through fiscal instruments. Prior to this announcement, investors and economists, according to Bloomberg, expected the government to be ready to invest up to 2 trillion yuan in a new fiscal stimulus package. Although a comprehensive package of measures was already initiated by China's central bank in September, including interest rate cuts and support for real estate and stock markets, such fiscal support had so far been lacking. Additional government spending is considered essential to revitalize the world's second-largest economy, which is under deflationary pressure. There is a risk that the government's growth target of around 5% for 2024 might be missed. Investors are closely monitoring Lan Fo'an's announcements to assess how far Beijing will go in its growth-oriented efforts, which have already sparked an outstanding stock market rally.