In order to relieve the local government debt problems and boost the economy, the Chinese Ministry of Finance is anticipated to challenge 6 trillion yuan ( US$ 843 billion ) of ultra-long special Treasury securities in the next three years.
The release of ultra-long unique government securities, which have maturities of more than 10 times, is a part of China’s efforts to boost its market through fiscal signal, Caixin reported on Monday, citing some unknown options.  ,
Stock investors had been speculating about the size of the government’s potential stimulus package after the People’s Bank of China ( PBoC ) and financial regulators on September 24 announced interest rate and reserve requirement ratio ( RRR ) cuts and vowed to stop home prices from falling.
In the fifth China Macroeconomy Forum on September 21, Liu Shijin, a leading scholar and former deputy leader of the China State Council’s Development Research Center, recommended that the main federal issue ultra-long unique government bonds within one to two times.  ,
He suggested that the central government should use the bonds ‘ proceeds to buy up empty homes from the industry in the near future and promote industrialization over the long term.  ,
Liu’s remarks had a role in the recent rise in the property business in Hong Kong and mainland China.  ,
Both the Shanghai Composite Index and the Hang Seng Index have increased 27 % since September 24 before reaching their maximums on October 8 and 7, respectively.  ,
Some property owners have been reducing their holdings over the past year as a result of the perception that China’s economic stimulus deal is not delivered on time.
The Shanghai Composite Index has declined 8.5 % from its peak of 3, 498 on October 8 to 3, 201 on Tuesday. The Hang Seng Index has lost 12 % from 23, 099 on October 7 to 20, 318 on Tuesday.
A live-mic murmur
Finance Minister Lan Fo’an stated in a media briefing on October 12 that the central government would considerably raise debt by issuing ultra-long specific treasury bonds to help China’s local debt problems. However, he refrained from making the bond issuance plan’s scale and timing public.  ,  ,
When Deputy Finance Minister Liao Min was questioned by a journalist about the size of the bond issuance, Lan told Liao with a whisper not to reveal it for the time being because” the size is big.” The media heard Lan whispering to Liao while his microphone was turned on.  ,
Prior to that, according to a report from Bloomberg on October 11 that the majority of 23 investors and analysts polled predicted that China would invest up to 2 trillion yuan in a stimulus package to boost its economy.
On the same day, Reuters reported that Beijing was anticipated to announce 2 trillion to 3 trillion yuan in new spending.  ,
These predictions were actually not far off the recently released 6 trillion yuan package because the majority of the money will be funded by an existing special bond issuance program.  ,
The Ministry of Finance announced in March that it would start issuing ultra-long special treasury bonds in 2024. According to the statement, local governments can use half of the proceeds to pay off debt, and the central government can use the other half.
A total of 752 billion yuan of ultra-long special treasury bonds were issued in the first three quarters of this year, some of which had maturities of up to 50 years.  ,
If the Finance Ministry continues with this initiative, it will be able to raise an additional 3 trillion yuan over the course of three years.
Local governments can apply for 500 billion yuan of loans each year under this program, which will not be enough to cover the interest payments on the remaining local debt, which is now 43.6 trillion yuan from 40.7 trillion yuan as of 2023. According to the Finance Ministry, the average term for the outstanding local debt is 9.4 years, while the average interest rate is 3.15 percent.  ,  ,
Claire Xiao, a senior credit analyst at Fidelity International, said in a report earlier this year that China’s public debt is about 70 % of the country’s gross domestic product at the end of 2023. However, she added that if additional 60 trillion yuan are accounted for by LGFV loans, China’s government debt to GDP ratio is about 130 %.  ,  ,
A basket of measures
Lan stated in the media briefing on October 12 that Beijing would introduce a number of incremental fiscal policy measures:
- reduce the potential for local and LGFV debt,
- replenish state-owned banks ‘ tier-one capitals,  ,
- stop home prices from falling,
- grant loans to underprivileged families and scholarships to students, and
- increase people’s overall consuming power.
He claimed that since there is still room for the central government to raise debt and raise the fiscal deficit, Beijing’s stimulus measures wo n’t be limited to these areas.
It is possible that Beijing will provide more information about the issuance of sovereignty and special bonds after the National People’s Congress standing committee holds its regular meeting later this month, according to a commentary published by Yicai.com.  ,
Read: Chinese stocks cool down as investors check reality
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