China “drastically increases” government bond issuance to boost economy, bolsters capital of state-owned banks

On October 12, the Chinese government announced that it would “significantly increase” the issuance of government bonds. Pictured at a construction site in Beijing in July (2024 Reuters/Tingshu Wang)

BEIJING (Reuters) – Chinese Finance Minister Lan Fuan announced at a press conference on the 12th that the country would “significantly increase” the issuance of government bonds. The money will be used to provide subsidies to low-income earners, support the real estate market, and replenish the capital of state-owned banks, helping to re- slow economic growth.

He did not mention the size of the new economic stimulus measures. “China still has plenty of room to issue debt,” Lan said, adding that China plans to take further counter-cyclical measures this year to curb economic fluctuations.

Mr. Ai said the government will help local governments to solve their debt problems. Local governments have 2.3 trillion yuan ($325.5 billion) of room to spend in the fourth quarter, including special bond issuance quotas and unused funds, and local governments will buy land. It was not used back from real estate developers He explained that it would be possible.

China is facing strong deflationary pressure due to the rapid cooling of the property market and declining consumer confidence, and is also increasingly concerned about over-reliance on exports as the global trade environment ‘ tension.

Economic indicators have been weaker than expected in recent months, raising concerns among economists and investors that the government’s growth target of around 5% this year may not be met and that a recession could occur. long-term structural is in the cards.

Global financial markets focused on China’s economic stimulus plan, and China’s stock market also rose.

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However, at Finance Minister Ai’s press conference, no specific details were given, such as the amount of issuance of certain government bonds. Additional issuance of government bonds requires the approval of the National People’s Congress (National People’s Congress). The Standing Committee of the National People’s Congress is likely to meet in the coming weeks.

Basu Menon, managing director of investment strategy at OCBC (Singapore), said of the press conference that “there was strong certainty, but there was no lack of calculation.” He said there are hopes for a fiscal stimulus package. large enough to keep the stock market rising has come to zero, which could cause disappointment in some parts of the market.

Many analysts say the government must address deep-rooted structural problems, including precarious spending and an overreliance on debt-financed infrastructure spending.

Most of China’s economic stimulus spending still goes toward investment, but revenues are falling and local governments are saddled with $13 trillion in debt.

Finance Minister Ai said at a press conference that other reforms would be announced “in stages”.

Huang Xuefeng, director of credit research at Shanghai Anfa Private Fund Management, said it will be difficult to reduce deleveraging pressures without taking measures to stimulate demand and increase investment.

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Joe Cash reports on China’s economic affairs, covering domestic fiscal and financial policy, key economic indicators, trade relations, and China’s growing engagement with developing countries. Before joining Reuters, he worked on UK and EU trade policy across the Asia-Pacific region. Joe studied Chinese at Oxford University and is a Mandarin speaker.