**China’s Unpaid Bills** China is looking for ways to help local governments pay off their unpaid bills to private companies, which exceed $1 trillion. The government may encourage state banks to lend money to local authorities to assist with these payments. In the first phase, discussions aim to address at least ¥1 trillion ($140 billion) of the debt owed to private firms. The overall goal is to resolve this issue by 2027, although specific funding amounts for later phases have not yet been confirmed. Local government entities owe about ¥10 trillion ($1.4 trillion) to businesses and civil servants. This amounts to roughly 7% of China’s GDP from last year. Such a heavy financial burden has created social tensions and dissatisfaction among private sector companies. Delayed payments from the government are causing frustration in the private sector, which poses a risk to China’s broader economic goals, including ‘common prosperity.’ Resolving these unpaid bills is crucial for ensuring social stability and economic health. **Investing Opportunities** Given this potential stimulus, it’s a good idea to consider investing in Chinese stocks that have declined in value. The Hang Seng China Enterprises Index has struggled this year, dropping over 8% since peaking in May 2025. Buying call options on broad China ETFs, like FXI, may provide leveraged exposure to any positive sentiment in the coming weeks. This situation also affects the commodities sector significantly, as local government spending is closely linked to infrastructure and construction projects. Iron ore prices have recently fallen to around $115 per metric ton, driven by ongoing concerns about China’s property sector, where new home sales dropped 25% year-over-year in August 2025. This could be an opportunity to purchase futures contracts on iron ore and copper, anticipating a recovery in demand. Even in its first phase, the scale of this intervention could provide support for the yuan. The USD/CNH exchange rate has been climbing towards 7.40, raising concerns about capital outflows. Strong government action could reverse this trend, making it an opportune moment to consider shorting the USD/CNH pair or selling call options on it. However, we must consider the initial ¥1 trillion in relation to the total ¥10 trillion issue. Previous targeted support measures in 2023 and 2024 did not lead to a lasting recovery from the property debt crisis. A smart strategy would be to pair any optimistic bets with protective put options on Chinese indexes, just in case this situation does not lead to the expected recovery. **Currency and Global Market Implications** This news has clear implications for global markets that are sensitive to Chinese demand. The Australian dollar, often seen as a barometer for Chinese economic health, has been weak, recently trading below 0.65 against the US dollar. We may consider taking long positions in the AUD/USD pair to profit from a potential recovery in Chinese economic activity. Create your live VT Markets account and start trading now.

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