In a bid to stimulate its struggling economy, China has pledged to "significantly increase" debt issuance, but left the size of the much-anticipated stimulus package undisclosed, leaving investors in suspense. The announcement, made by Finance Minister Lan Foan on Saturday, outlined plans to support local governments, subsidize low-income households, assist the ailing property market, and bolster state bank capital. However, the lack of precise financial figures caused uncertainty in the market, dampening recent stock market momentum.

The measures come at a critical time, as the world’s second-largest economy faces mounting deflationary pressures and a sharp property downturn, which has stifled consumer confidence. Investors had been anticipating a more concrete stimulus plan following signals of urgency from Chinese leadership at a Politburo meeting in September. While the Chinese stock market surged 25% following that meeting, the absence of detailed policy announcements has since led to a market pullback.

Vasu Menon, Managing Director for Investment Strategy at OCBC in Singapore, commented that while the press conference showed "strong determination," it fell short on "numerical details." He noted that the lack of a substantial fiscal package might disappoint investors hoping for a more significant boost to sustain the stock market rally.

Despite the vagueness, the government reiterated its confidence in meeting the 2024 economic growth target of around 5%, though recent economic data has consistently underperformed expectations. Economists fear that a prolonged structural slowdown could be underway, further complicating China’s economic recovery.

According to reports, China may issue special sovereign bonds worth approximately 2 trillion yuan ($284 billion) this year. Half of this would be allocated to assist local governments with their debt burdens, while the other half would go towards stimulating domestic consumption, including subsidies for household goods and child allowances for families with two or more children. Additionally, China is reportedly considering injecting up to 1 trillion yuan into its state banks to increase lending, though weak credit demand may hinder the effectiveness of such measures.

China’s central bank has already taken aggressive steps in recent months, cutting interest rates, injecting 1 trillion yuan in liquidity, and rolling out other initiatives to support the property and stock markets. However, economists argue that deeper reforms are necessary to address underlying structural issues, particularly the need to boost consumption and reduce reliance on debt-driven infrastructure projects. Currently, China’s investment levels are 20 percentage points above the global average, while household spending lags behind by the same margin.

Lan Foan indicated that more reforms would be introduced "step-by-step" but emphasized that much of the new stimulus would focus on addressing the fiscal gap and resolving local government debt challenges. However, analysts remain skeptical about the effectiveness of the measures in alleviating the country's deflationary pressures without directly tackling consumer demand.

With local governments still having 2.3 trillion yuan in spending capacity for the remainder of 2024, China faces an uphill battle in restoring investor confidence and driving economic recovery. Global markets, meanwhile, continue to react cautiously, with commodities such as iron ore and oil fluctuating as hopes for a substantial stimulus package remain unmet. Investors now look toward China's rubber-stamp legislature meeting, expected in the coming weeks, for further details on the nation's economic rescue plan.