China's Stimulus Plan Not Enough To Ignite Stocks

China’s central government announced a new fiscal stimulus package worth 6 trillion yuan ($840 billion) to ease local governments’ hidden debt burdens. This expansive financial program, set to be implemented by the end of 2026, marks a significant move by Beijing to address mounting economic pressures and revive growth amid global uncertainties.

The new stimulus plan, confirmed by China’s Minister of Finance Lan Fo’an, will allocate around 2 trillion yuan annually to local authorities, CNBC reports.

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Additionally, central authorities will issue 800 billion yuan annually in special local government bonds, totaling 4 trillion yuan over the next five years. These measures are part of a broader strategy to reduce local hidden debt from 14.3 trillion yuan to 2.3 trillion yuan by 2028.

U.S.-listed Chinese stocks Alibaba Group Holding. BABA, JD.com, Inc. (NASDAQ: JD), Baidu, Inc. BIDU, NIO Inc. (NYSE: NIO), Li Auto Inc. (NASDAQ: LI), and XPeng Inc. (NYSE: XPEV) are trading lower Friday as the stimulus failed to impress the Street which expected over 10 trillion yuan ($1.39 billion) in financial support, focused on local government debt and real estate.

The financial package comes as the Chinese economy faces lingering challenges, including a real estate market slump and weaker local government revenues post-pandemic. During a press briefing, Minister Lan emphasized the urgency of addressing hidden local debts, which have ballooned to an estimated 50-60 trillion yuan ($7-8.4 trillion), according to projections by Nomura. This new initiative aims to help local governments manage interest payments, potentially saving up to 300 billion yuan annually.

China’s parliament, the National People’s Congress, is expected to formally approve the increased debt issuance quotas during its current legislative session. The move follows recent stimulus discussions led by President Xi Jinping and earlier efforts by the People’s Bank of China, which included interest rate cuts to support the economy. Market analysts anticipate heightened fiscal support after Donald Trump’s election, which may reignite trade tensions between the U.S. and China.

China aims to counter potential “Trump shocks” on trade with its latest fiscal move.

After Trump’s victory, Chinese stocks declined while U.S. markets surged. During his campaign, Trump suggested boosting tariffs on Chinese imports by up to 60%. Such hikes might slash Chinese exports to the U.S. by around $200 billion and cut one percentage point from China’s GDP, according to former economic planning official Zhu Baoliang, cited by CNBC.

Price Actions: At the last check on Friday, BABA stock is down 3.28% at $96.86 premarket. JD is down 3.44%, BIDU is down 2.20%, NIO is down 2.26%, LI is down 4.96%, and XPEV is down 2.74%.

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