Exclusive-China to issue $284 billion of sovereign debt this year to help revive economy, sources say
2024.09.26 06:33
(Reuters) – China plans to issue special sovereign bonds worth about 2 trillion yuan ($284.43 billion) this year as part of a fresh fiscal stimulus, said two sources with knowledge of the matter, adding to a string of measures to battle strong deflationary pressures and faltering economic growth.
As part of the package, the Ministry of Finance (MOF) plans to issue 1 trillion yuan of special sovereign debt primarily to stimulate consumption amid growing concerns about a stuttering post-COVID economic recovery, said the sources.
Part of the MOF proceeds raised via special bonds, which are floated for a specific purpose, will be used to increase subsidies for the trade-in and renewal of consumer goods and for the upgrade of large-scale business equipment, said the two sources.
The proceeds will also be used to provide a monthly allowance of about 800 yuan, or $114, per child to all households with two or more children, excluding the first child, the first source said.
China also aims to raise another 1 trillion yuan via a separate special sovereign debt issuance and plans to use the proceeds to help local governments tackle their debt problems, the source added.
Most of China’s fiscal stimulus still goes into investment, but returns are dwindling and the spending has saddled local governments with $13 trillion in debt. China’s household spending is less than 40% of GDP, some 20 percentage points below the global average.
Some of the fiscal support measures could be unveiled as soon as this week, said the sources, who declined to be named as they were not authorised to speak to media.
China’s State Council Information Office, which handles media queries on behalf of the government, and the MOF did not immediately respond to requests for comment.
GROWTH TARGET IN FOCUS
Chinese leaders pledged on Thursday to push to hit the 2024 economic growth target of roughly 5% and stop declines in the housing market, state media reported, citing a Politburo meeting.
The Politburo said the country would make good use of its ultra-long special sovereign bonds and local government special bonds to support government investment and necessary fiscal spending should be guaranteed.
The planned fiscal expansion is the latest attempt by Chinese policymakers to revive an economy grappling with deflationary pressures and in danger of missing this year’s growth target due to a sharp property downturn and frail consumer confidence.
It would also come after the central bank on Tuesday announced broader-than-expected monetary stimulus and property market support measures to restore confidence in the economy with key measures including liquidity injections and lower borrowing costs.
The measures have lifted market sentiment, but mainly because they raised expectations authorities will follow soon with a fiscal package to complement the monetary and financial measures.
Under the guidance of the top leadership, the MOF, along with several government bodies, has in recent weeks been working on fiscal stimulus measures to revive the economy, said the two sources.
In addition to the special sovereign debt issuance to support consumption, Chinese authorities also plan to ramp up financial support for small and medium-sized enterprises in phases, such as employment subsidies and tax and fee relief, to reduce their operating costs, the second source said.
“We expect more fiscal support for housing and social welfare spending in the next few months. In our view, it’s not a ‘whatever it takes’ moment, but it definitely shows that Beijing is taking deflation seriously and exploring all options,” Morgan Stanley economists led by Robin Xing said in a research note on Thursday.
Bloomberg News reported on Thursday that China is also considering the injection up to 1 trillion yuan of capital into its biggest state banks to increase their capacity to support the struggling economy, primarily by issuing new special sovereign bonds.
