China mulls US$411bn special bonds

Chinese policymakers plan to sell a record 3 trillion yuan (US$411.1 billion) of special treasury bonds next year, as the government seeks to boost the slowing economy, Reuters reported yesterday.

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Funds raised from the bonds would be used to support consumption subsidies, business equipment upgrades, and investments in key technology and advanced manufacturing sectors, according to Reuters, which cited two unnamed sources.

Some of the proceeds would also be used to inject capital into large state banks, it said.

Greater fiscal stimulus would help the world’s second-largest economy buffer against expected headwinds from the administration of US president-elect Donald Trump, which has threatened to impose steep tariffs on Chinese imports.

China’s CSI 300 equity benchmark gained about 1 percent after the report, before paring gains. Chinese government bonds extended losses, with the 10-year yield rising four basis points to 1.72 percent from a record-low close in the previous session.

China’s special sovereign bonds are issued for specific purposes — such as financing COVID-19 pandemic-related spending — and therefore are not counted toward the headline budget deficit. The size of the potential bond sales would exceed the 1 trillion yuan sold this year and become the highest on record.

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“It’s bigger than our expectations and shows the government’s willingness to shore up growth through a more sizable fiscal stimulus,” Societe Generale SA China economist Michelle Lam (林雪潔) said.

About 1.3 trillion yuan of the funds to be raised would be used to support a consumer product and business equipment trade-in program, as well as major construction projects, Reuters said.

Apart from that, more than 1 trillion yuan would be used to invest in “new productive forces,” which stand for advanced manufacturing sectors such as electric vehicles, Reuters reported.

The rest of the funds would be used to recapitalize large state banks as their profit margins are narrowing, it said.

China would “expand the magnitude of fiscal spending and accelerate the spending pace,” the Chinese Ministry of Finance said yesterday in a statement following a two-day national conference on fiscal work next year.