The Ministry of Finance announced on Monday that China will commence the sale of an initial series of long-dated bonds this week, aiming to bolster support for the world’s second-largest economy.
The central government is set to initiate the issuance of approximately $138 billion worth of debt, with the sale of 30-year bonds commencing this Friday, as per an announcement on the Ministry of Finance’s website.
Subsequent bond sales, featuring tenors of 20 years and 50 years, are scheduled for May 24 and June 14, respectively. However, the Ministry of Finance did not specify the quantity of bonds to be issued.
China’s economy has been facing challenges stemming from a volatile property market and elevated youth unemployment rates. In response, policymakers aim to achieve a growth target of around five percent for the year, a goal viewed as ambitious by many economists.
Analysts anticipate that the bond sales could potentially boost the growth figure by one percentage point. Xing Zhaopeng from the Australia and New Zealand Banking Group highlighted the potential impact of these measures.
The issuance of long-term bonds is primarily intended to replenish capital for domestic banks, according to Dan Wang, chief economist at Hang Seng Bank China. While this move may not address liquidity concerns in the market, it is expected to reduce long-term financing costs for government projects.
China’s decision to issue such government bonds is relatively rare and typically occurs during periods of significant economic challenges. For instance, similar measures were taken in early 2020 to fund initiatives aimed at mitigating the effects of the pandemic.
Lingering risks
Official data released on Saturday revealed that consumer prices in the country have maintained positive growth for three consecutive months. Despite this, domestic spending remains subdued.
Historically, real estate development played a pivotal role in driving economic growth. However, mounting debt among several major firms in the sector has led to a slowdown in activity. The crisis has been compounded by declining home prices and growing consumer reluctance to invest in property.
In response, authorities have eased previous restrictions on home purchases in select areas, including major cities like Hangzhou and Xi’an, in an effort to stimulate demand.
During China’s annual parliamentary session in March, leaders openly acknowledged the challenges facing the economy and pledged to implement various measures to stimulate growth. Premier Li cautioned that meeting growth targets for the year would be challenging given the persisting risks and uncertainties in the economy.
Housing minister Ni Hong also addressed the property crisis, acknowledging the difficulty of resolving it. He emphasized the need for real estate companies facing financial distress to undergo bankruptcy or restructuring.
Youth unemployment reached an unprecedented level of 21.3% in mid-2023 before monthly reporting on the issue was halted by officials.
Investors have urged the central government to take more significant steps to bolster the weakening economy.
