Two sources reported that as beijing increases fiscal stimulus to boost a struggling economy, Chinese authorities have decided to issue 3 trillion yuan ($411 billion) worth of special treasury bonds next year, the largest amount ever.
beijing is taking steps to lessen the impact of an anticipated rise in US tariffs on Chinese goods when donald trump takes office in January. The target for 2025 sovereign debt issuance would represent a significant increase from this year's 1 trillion yuan.According to the sources, the funds will be used to increase demand through a variety of programs, including subsidy programs, corporate equipment improvements, and financing investments in innovative industries driven by innovation.
Because of the delicate nature of the subject, the sources who were aware of the conversations chose not to be named.
A Reuters request for comment was not immediately answered by the State Council Information office, which responds to media enquiries on behalf of the government, the finance ministry, and the National Development and Reform Commission (NDRC).Following the announcement, China's 10-year and 30-year treasury yields increased by 1 basis point (bp) and 2 bps, respectively.
The largest-ever special treasury bond sale is scheduled for next year, demonstrating Beijing's readiness to take on even more debt in order to combat deflationary pressures in the second-largest economy in the world.
According to Tommy Xie, head of Asia Macro research at OCBC Bank, the issue "exceeded market expectations."
"Furthermore, any central government bond issuance is viewed as a positive development, probably offering incremental support for growth, since the central government is the only entity with meaningful capacity for additional leverage."Since china views ultra-long special bonds as an extraordinary measure to raise funds for certain projects or policy goals as needed, it typically does not include them in its annual budget planning.
According to the people with knowledge of the situation, the plan for next year calls for raising roughly 1.3 trillion yuan through long-term special treasury notes in order to finance "two major" and "two new" programs.
The 'new' efforts include a durable goods subsidy program that enables customers to exchange their old automobiles or appliances for new ones at a reduced price, as well as a separate program that provides subsidies for enterprises to replace their huge equipment.According to government records, the "major" programs are initiatives that carry out national policies including building farms, railroads, and airports as well as enhancing security capability in strategic locations.
beijing has fully allocated all earnings from this year's 1 trillion yuan in ultra-long special treasury bonds, according to the state planner NDRC, which made the announcement on december 13. Approximately 70% of the proceeds were used to finance the "two major" projects, with the remaining funds going towards the "two new" initiatives.
According to the sources, a significant amount of the anticipated revenue for the upcoming year would go towards investments in "new productive forces," Beijing's abbreviation for advanced manufacturing, which includes robotics, electric cars, semiconductors, and green energy.According to one of the sources, the project would receive over 1 trillion yuan. According to the sources, the remaining funds will be used to recapitalise major state banks as leading lenders grapple with declining margins, sluggish earnings, and an increase in bad loans.
Next year, 2.4% of 2023 GDP would be allocated to the issuance of additional special treasury debt. In 2007, beijing issued these bonds to raise 1.55 trillion yuan, or 5.7% of its total economic output.
On december 11 and 12, President Xi jinping convened the Central Economic Work Conference (CEWC) with senior officials to determine the direction of the economy in 2025.
'Necessary to ensure steady economic growth', according to a state media report of the meeting, raising the fiscal deficitChina intends to maintain an economic growth target of roughly 5% and increase the budget deficit to a record 4% of GDP next year, according to a story published by Reuters last week that cited sources.
beijing sets goals for the upcoming year at the CEWC in a number of areas, including debt issuance, budget deficit, and economic growth. Although these goals are typically reached by high-ranking officials, they are not formally announced until the annual parliament meeting in March, and they may change before then.
A severe property crisis, massive local government debt, and weak consumer demand have all contributed to China's economic difficulties this year. If trump fulfils his campaign promises, exports—one of the few areas that are doing well—may soon be subject to US tariffs exceeding 60%.Consumers are feeling less wealthy as a result of declining real estate prices and inadequate social welfare, even though china will have to rely more on domestic growth due to the threats to exports. An further significant risk is low household demand.