Reducing Deficit Burden and Risk... What Does China's Ultra-Long-Term Special Treasury Bond Mean?

Fourth Since First Publication in 1998
Approximately 1 Trillion Yuan... Deployed in Local Government Projects

There is an analysis that the ultra-long-term special government bonds, which the Chinese government plans to issue this year worth 1 trillion yuan (approximately 185 trillion won), are a 'clever move' to stimulate the Chinese economy. This is because there is no repayment burden through fiscal means, and at the same time, local government debt risks can be effectively managed.

Li Chang, Premier of the State Council of China, announced in the government work report at the opening ceremony of the National People's Congress (NPC) held at the Great Hall of the People in Beijing on the 5th, "To systematically resolve fiscal issues of some major projects in the process of national rejuvenation, we plan to issue ultra-long-term special government bonds over the next few years starting this year."

[Image source=Yonhap News]

The scale of the ultra-long-term special government bonds to be issued this year is 1 trillion yuan, making it the fourth special bond ever issued by the Chinese government. The first case was in 1998, issued at about 270 billion yuan to support state-owned banks' funding. Subsequently, bonds were issued in 2007 for the China Investment Corporation (CIC) funding injection (200 billion yuan) and in 2020 for COVID-19 prevention and infrastructure projects (1 trillion yuan), respectively.

According to last year's central and local budget execution and this year's draft budget, the 1 trillion yuan ultra-long-term special government bonds to be issued this time are not included in the deficit. Due to their long maturity and characteristics similar to perpetual bonds, and because the returns generated from investment sectors are typically used for debt repayment. The funds raised this time are expected to be invested in local government projects related to food, energy, supply chains, urbanization, and rural revitalization.

The Chinese government's fiscal deficit target for this year is 3.0% of Gross Domestic Product (GDP), and the 1 trillion yuan ultra-long-term special government bonds account for about 0.8% of last year's nominal GDP of 126 trillion yuan. Wang Qing, chief macro analyst at Chinese credit rating agency Dongfang Jincheng, viewed that considering this, the actual target for this year is 3.8%, the same level as at the end of last year. In effect, while improving the fiscal deficit ratio, funds can be released through financing to manage local government debt risks and other purposes.

Zhou Maohua, an economist at China Guangda Bank, told the Pengpai newspaper, "Ultra-long-term special government bonds can help ease local fiscal constraints on major project investments and expand short-term demand to enhance development potential," adding, "Also, continuous issuance of special government bonds in the future will help raise market expectations for inflation."

Luo Zhiheng, chief economist at Guangdong Development Securities in China, also commented on this, saying, "It is positive for expanding total demand, optimizing supply structure, improving economic efficiency, and raising the potential growth rate of the Chinese economy," and added, "It can optimize the debt structure and reduce risks."

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