China starts issuing ultra-long bonds worth $138 billion to stimulate the economy

China is about to launch the first phase of a major financial initiative with the issuance of 1 trillion yuan ($138 billion) of ultra-long special government bonds, starting from May 17 to November 15, 2024. The move is part of a broader strategy to strengthen economic growth through higher infrastructure spending (para. 1)(para. 2). Premier Li Qiang announced this multi-year bond issuance program at the National People’s Congress in March, emphasizing that the funds will go to major national projects without affecting the official budget deficit. (para. 3).

The distribution plan for these funds states that half of the proceeds will be allocated to central government initiatives and the other half to local governments. These investments will focus on key areas such as scientific and technological independence, urban-rural integration, coordination of regional development and improving food and energy security. (para. 4)(para. 5).

In response to these developments, financial experts anticipate further monetary easing measures from policymakers to ensure successful bond issuance. This could include reductions in banks’ reserve requirements, aimed at increasing the broad money supply and stimulating economic activity (para. 6).

Despite these efforts, China faces persistent economic challenges, including an ongoing real estate market slump and weak consumer spending. Last year the economy grew by 5.2%, but achieving the target of around 5% GDP growth for this year remains uncertain (para. 7). In addition, local governments may find their capacity for infrastructure investment limited as a result of recent measures aimed at reducing secretive lending practices (para. 8).

The detailed bond issuance schedule includes multiple terms spread over different maturities: 20-year bonds are issued monthly from May to November; From May 17, bonds with a term of 30 years will be repaid in twelve installments; and three installments are scheduled for the 50-year bonds, beginning June 14 (para. 9). This structured approach underlines China’s commitment to long-term fiscal planning and economic stability.

Moreover, government bond issuance is expected to increase in the coming months, after a noticeably slow start earlier this year. This increase includes not only these special ultra-long bonds, but also a catch-up in local government bond issuance, which significantly lagged previous years’ figures, despite larger budget deficits at the local level (para. 10).

Overall, China’s strategic deployment of ultra-long government bonds represents a critical effort to finance critical national projects while maintaining fiscal health amid challenging economic conditions.

AI generated, for reference only