China Disappoints Investors With $1.4 Trillion Debt-Swap Plan

China unveiled a much-anticipated 10 trillion yuan ($1.4 trillion) program to refinance local governments, and investors weren’t impressed. Stock index futures fell and the yuan weakened following the late afternoon announcement, while oil and iron ore prices also declined. The plan to defuse local government debt, long considered a time bomb in the Chinese financial system, came after a week-long meeting of the country’s top legislators. Investors had hoped the high-level gathering would also roll out potent fiscal spending to counter the threat of tariffs under a second Donald Trump presidency. Economists at Standard Chartered 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%. Officials can expect continued pressure on them to step up support for the economy in the months ahead.

Companies are already moving production away from China on concern Trump will raise levies on imported goods. Shoe retailer Steven Madden aims to reduce goods manufactured in China by 40% within the next year, up from its prior target of a 10% reduction. Church & Dwight has already shifted some output from the country, such as its Waterpik oral-care business. “There are plans in place and actions that we’ve taken to mitigate that impact,” CFO Rick Dierker said last week in response to a question on tariffs. “Just like everybody, we’re well aware of implications there.”