ATGnews reported Tuesday, citing sources familiar with the matter, that China will issue 3 trillion yuan ($411 billion) of special treasury bonds next year, the largest on record.
Beijing is pushing for stronger fiscal stimulus to help an economy buffeted by headwinds, and the plan for an increase from the 1 trillion yuan that will be issued in 2024 suggests it is doing so. The move also follows concerns about how higher tariffs on Chinese exports might affect US business, and Chinese officials are bracing for the possible effects of higher U.S. tariffs under Donald Trump’s incoming administration.
The report said the money raised will be used to stimulate consumption through subsidy programs, aid business equipment upgrades and spur innovation in advanced industries. China 10-Year and China 30-Year treasury bond yields rose 1.7 and 2.1 basis points after the announcement.
If it happens, the planned 2025 special treasury bond issuance would be the biggest ever and Beijing is prepared to go to even greater levels of debt to counter deflationary pressures and keep growth momentum. “The issuance exceeded market expectations,” noted Tommy Xie, head of Asia Macro (BCBA:BMAm) research at OCBC Bank.
It was seen as positive since the central government is better equipped to take on more debt and is poised to offer further economic support, he added. As a rule, China reserves special treasury bonds for targeted policy purposes and circumvents regular budget plans. These are called exceptional circumstances instruments, which are regarded as exceptional circumstances instruments which allow the government to raise funds for specific projects.
The total issuance to be undertaken in 2025 will be about 1.3 trillion yuan, 1.3 trillion yuan will be used to support two major initiatives and two new initiatives.
The ‘new’ programs include subsidies to consumers to replace old cars and appliances, and to businesses to upgrade large scale equipment. The “major” projects will be infrastructure development projects like building railways, airports and farmland and strengthening national security capabilities, the paper said.
A major portion of China’s planned 3 trillion yuan special treasury bond issue for next year will be used to invest in new productive forces, a term Beijing uses for advanced industrial areas such as electric vehicles, robotics, semiconductors and green energy, the report said. But one source said that the initiative would be funded by more than 1 trillion yuan.
The rest will help recapitalize the country’s major state-owned banks, which are bleeding margins, losing profits and accumulating bad debt. China says its planned bond issuance for 2025 is around 2.4 percent of its 2023 gross domestic product (GDP). By contrast, Beijing sowed 1.55 trillion yuan ($247 billion) in special bonds in 2007, equal to 5.7 percent of the nation’s economic output at the time.