China’s fiscal package needs to be sizeable to be effective, maintain momentum: economist

China should issue at least 10 trillion yuan (US$1.4 trillion) worth of long-term special treasury bonds to boost consumption and help local governments to pay off debt owed to the private sector, a leading Chinese economist said.

Mao said China should consider issuing additional long-term treasury bonds of a significant size – a move that would lift its official fiscal deficit ratio of 3 per cent of its gross domestic product this year.

“For example, we should be considering at least 10 trillion yuan,” said Mao, who is also the founder of the China Chengxin Credit Rating Group.

“I think it needs to be sizeable for it to be effective to lift the economy and maintain the positive environment following the monetary policy easing [by the central bank].”

Mao suggested that the proceeds from the long-term treasury bonds could be channelled to subsidising household spending in the form of consumption vouchers and to repay some of the money owed to the private sector to improve local governments’ credit records.