China Pledges Swift Implementation of 1 Trillion Yuan Bond Plan, Aiming to Strengthen Economic Recovery

China Pledges Swift Implementation of 1 Trillion Yuan Bond Plan, Aiming to Strengthen Economic Recovery

Global Times: Chinese officials have pledged to expeditiously implement a plan to issue an additional 1 trillion yuan ($137 billion) in special treasury bonds in the fourth quarter. This move, a rarity in China’s history, is designed to reinforce the positive recovery trend of the Chinese economy while ensuring that the country’s debt remains manageable.

The plan, approved by the top legislature on Tuesday, has already had a positive impact on market expectations and confidence, as major Chinese stock indexes experienced gains on Wednesday. Analysts interpret this action as a demonstration of Chinese policymakers’ determination and capability to navigate significant downward pressures and maintain stability in the Chinese economy.

The Chinese Ministry of Finance (MOF) announced the issuance of yuan-denominated treasury bonds worth 16 billion yuan in the Hong Kong Special Administrative Region, with overwhelming enthusiasm from investors. While the MOF did not explicitly state whether this issuance was linked to the 1-trillion-yuan plan, officials from the MOF and the National Development and Reform Commission (NDRC) assured a swift implementation of the overall plan.

Zhu Zhongming, vice minister of finance, outlined that the MOF will promptly initiate the issuance of treasury bonds, optimize budget fund allocation, reinforce supervision of treasury bond funds, and enhance the efficiency of fund utilization.

The approved plan involves utilizing the additional funds in eight specific areas, including post-disaster reconstruction, key flood prevention projects, and high-standard farmland construction. Correspondingly, a Xinhua report indicates an adjustment to the central government’s budget in 2023, with China’s fiscal deficit rising to 4.88 trillion yuan from 3.88 trillion yuan this year. This increase would result in a fiscal deficit ratio of 3.8 percent, up from 3 percent.

This marks the fourth instance of China raising the budget deficit ratio, historically done to stabilize the economy during critical periods. Analysts emphasize the potential positive impact on the economy, with the issuance helping alleviate debt pressures, boost market confidence, and address investor concerns.

Market sentiment improved, as major stock indexes closed higher on Wednesday, despite recent declines. The plan is expected not only to boost expectations and confidence but also to contribute to stable economic growth in the fourth quarter of 2023 and beyond.

Cong Yi, a professor from the Tianjin University of Finance and Economics, highlighted that the funds will be directed towards projects in disaster-affected areas, addressing local government debt issues and stabilizing the economy. Cao Heping, an economist at Peking University, estimated that the bond issuance could add 0.3 percentage points to GDP growth in the fourth quarter of 2023 and the first quarter of 2024, complementing other policy measures to stabilize growth.

Chinese officials dismissed claims of government debt risks, emphasizing that the debt ratio remains within a reasonable range and that the overall risk is controllable. Analysts underscored the targeted and effective nature of the plan, addressing specific issues and positively impacting economic stability.