China’s stimulus measures will shore up economic growth this year and next but may undermine the country’s drive to control debt and worsen structural distortions over the medium term, the OECD said in a report on Tuesday.
Beijing has stepped up fiscal stimulus to prevent a sharper slowdown in the world’s second-largest economy, which is being squeezed by weaker domestic demand and a trade war with the United States.
Local governments will be allowed to issue 2.15 trillion yuan ($320.60 billion) worth of special purpose bonds in 2019 to fund infrastructure projects, a jump of 59 percent from last year.
But S&P Global Ratings estimated last year that local governments were already sitting on hidden debt that could be as high as 40 trillion yuan.
“Infrastructure stimulus could lift growth over the projection horizon, but it could lead to a further build-up of imbalances and capital misallocation, and thereby weaker growth in the medium term,” the OECD said in its latest survey on China’s economy.
