Near-term fiscal boost, follow-up measures needed

Local governments have been told to issue and spend their remaining special bond quotas by end-October, which will boost fiscal outlays in the near-term. But more needs to be done to prevent a premature withdrawal of support later in the year. On its own, a proposed swap of LGFV debt for government bonds won’t do much to create additional fiscal space.

Meanwhile, we expect next week’s data releases to add to concerns surrounding China’s economy. Exports and credit growth are likely to disappoint, while headline CPI will slip into deflationary territory.