The plan approved by the Standing Committee of the National People’s Congress is close to the upper range of forecasts by most economists as China seeks to curb financial risks and shore up growth. It is the first time since 2015 that authorities raised the debt ceiling for local governments in the middle of a year.

“Resolving local debt in the next few years will restore the investment momentum in the economy,” said Xiang Xiaotian, a director at Shanghai Chengzhou Investment Management Co. “If one of the three growth drivers regains momentum, together with fiscal expenditures driving investment and consumption, the economy will stabilize.”

Stock Moves

The prospect of an expanded trade war during the US president-elect’s second term — even if it falls short of the threatened 60% tariff — is raising expectations for greater stimulus going into next year, as China braces for a new era of protectionism that could put harsher constraints on trade.

Such expectations rekindled China’s stock rally, with the CSI 300 Index rising more than 5% this week, the most in about a month. The market’s initial surge since late September following the central bank’s stimulus blitz lost steam in recent weeks as investors waited for concrete fiscal measures. The CSI 300 surged nearly 35% from a September low through Oct. 8, but is down about 4% since.

Economists at Standard Chartered Plc and Macquarie project China’s growth would suffer a hit of as much as two percentage points should Trump follow through on his campaign vow to raise tariffs on Chinese goods to 60%.

Showing a sense of urgency, Chinese President Xi Jinping on Wednesday repeated a call for officials to step up efforts in the remaining two months of the year, so as to meet the nation’s annual economic targets.

In another sign of policy support, Chinese regulators told the nation’s banks to lower the rates they pay on deposits from other financial institutions to free up funds to boost the economy, Bloomberg News reported Thursday, citing people familiar with the matter.

“It appears that the authorities are kicking the can to December policy meetings,” said Homin Lee, senior macro strategist at Lombard Odier. “Finance Minister Lan is clearly keeping the door open for bank recapitalization and other central government-level stimulus measures.”

--With assistance from Tian Chen, Iris Ouyang, Kelly Li and Sangmi Cha.

(Updates with analyst comments and more details.)

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