Beijing is turning to state-owned policy banks once again to help rescue an economy under strain, ordering them to provide 800 billion yuan ($120 billion) in funding for infrastructure projects.
The stimulus, announced at a State Council meeting chaired by Premier Li Keqiang, could help finance a significant chunk of infrastructure costs this year and give some relief to local governments grappling with plunging revenues.
President Xi Jinping has called for an all-out effort to boost infrastructure this year, turning to an old playbook of driving up growth through public investment. Funding the extra spending has proven to be tricky though, after a plunge in land sales and widespread Covid outbreaks battered government revenue.
“We think the three key ingredients for investment — projects, financing and incentive — are all falling into place this year,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc. “The additional 800 billion yuan loans from policy banks will help fill the financing gap if any.”
Standard Chartered forecasts infrastructure investment will grow 10-15% this year, although that may still not be enough to offset the headwinds to economic growth. Bloomberg Economics estimated China’s infrastructure spending came to 23 trillion yuan in 2021.
Beijing’s calls for faster implementation of growth-boosting policies have intensified since official data showed that economic activity contracted in April and unemployment rose sharply. High-frequency indicators suggest the decline continued in May, leading Li to warn last week of risks from a possible year-on-year contraction in the second quarter.
Nomura Holdings Ltd. estimates the government has a 6 trillion yuan funding gap this year, created in part by a sharp contraction in revenue from land sales, a key source of funding of infrastructure investment by local governments. The 800 billion yuan funding announced by the State Council accounts for nearly half of the 1.65 trillion yuan in new policy bank lending in 2021, economists led by Lu Ting wrote in a note.
Finding Support
China’s policy lenders include China Development Bank, the Agricultural Development Bank of China and the Export-Import Bank of China. They are considered key stabilizers of the economy, and are often called upon to provide financing support for big projects, including infrastructure.
In 2014, for example, the policy banks were asked to help provide funding to the nation’s shantytown renovation projects. They were also urged to step up financing for major investment projects earlier this year as part of China’s broader efforts to support businesses hit by Covid.
The State Council didn’t say in its latest announcement how the policy banks would fund the lending. The development banks’ main source of funds come from issuing bonds or loans from China’s central bank.
The banks may be able to raise the money by selling bonds — likely long-term ones with tenors of five, 10 or 20 years — to fund an expansion in credit, according to economists from Nomura, NatWest Group Plc. and Australia & New Zealand Banking Group Ltd.
And the People’s Bank of China could cut the reserve requirement ratio, or the amount of money banks have to keep in reserve, by another 50 basis points to support the financial market with liquidity, said Liu Peiqian, chief China economist at NatWest Group Plc.
Special Bonds
Policy bank-led funding could also alleviate pressure on the government to ramp up borrowing in other ways, such as selling special sovereign bonds.
“This has to an extent reduced the likelihood of issuing additional local government special bond or special sovereign bonds,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong Ltd. Those special bonds have been advocated by some as a way to pay for extra stimulus to boost the economy, but they’d also be a risk, adding to the already rising national debt.
Despite the stimulus, China’s growth outlook will depend on how the government manages Covid outbreaks going forward. Economists forecast gross domestic product growth of 4.5% this year, well below the government’s target of about 5.5%. Some banks like Nomura are predicting growth as weak as 3.9%.
Covid cases have moderated in recent weeks, leading to an easing of the lockdown in Shanghai. Still, the government’s strict Covid Zero policy, which requires restrictions on activity wherever outbreaks occur, means that consumption is likely to remain muted.
“The Shanghai lockdown has been an outlier so far, but as a minimum we should expect more outbreaks requiring some level of restrictions,” Allan von Mehren, China economist at Danske Bank A/S, wrote in a note.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.