China Sees Active Local Government Bond Issuance Early This Year to Stimulate Economy

[Image source=Yonhap News]

[Asia Economy Beijing=Special Correspondent Sunmi Park] It has been revealed that Chinese local governments have been rushing to issue bonds for economic stimulus early in the year.

According to Bloomberg on the 2nd, the governments of Sichuan Province and Henan Province issued special bonds totaling 87.6 billion yuan (USD 12.6 billion) on that day. Typically, local governments issue bonds for infrastructure investment after the National People's Congress sessions end in March, but this year, unusually, some local governments began issuing bonds right at the start of the new year.

In the case of Henan Province government bonds, 5-year, 10-year, and 15-year bonds were issued at interest rates of 3.14%, 3.38%, and 3.67%, respectively. The 10-year bonds had a spread of about 20 basis points compared to national treasury bonds, reflecting the growing demand for local government bonds.

The fact that local governments are rushing to issue bonds early in the year is interpreted as being influenced by the Chinese central government's determination to stimulate the economy.

The Chinese government maintains a stance of implementing active fiscal policies to prevent economic growth slowdown. If local governments use funds raised early through bond issuance for infrastructure investment, it can help stimulate the economy.

In particular, the issuance of local government bonds came as the People's Bank of China reaffirmed its commitment to economic stimulus by cutting the reserve requirement ratio (RRR) for banks from the first day of the new year. Starting from the 6th of this month, the PBOC will lower the RRR by 0.5 percentage points for large banks from 13% and for small and medium banks from 11%. The PBOC expects that this 0.5 percentage point cut in the RRR will inject liquidity of 800 billion yuan (USD 115 billion) into the financial system.

Meanwhile, with local governments beginning bond issuance early in the year, the scale of new local government bond issuance in China this year is expected to reach 3 trillion yuan. SC Bank predicts that the issuance scale of Chinese local bonds this year will be about 3 trillion yuan for new bonds and 2 trillion yuan for reissuance, with the total issuance exceeding last year's 4.4 trillion yuan. It also expects more local governments to start issuing bonds early this month.

Already, 11 local governments in China have announced plans to issue bonds exceeding 450 billion yuan within the first quarter.

This content was produced with the assistance of AI translation services.