[News Terms] China’s ‘Ultra-Long-Term Special Government Bonds’ as a Stimulus Measure in the Economy

Published 07 Mar.2024 16:26(KST)

The ultra-long-term special government bonds that the Chinese government plans to issue for the first time in four years are bonds with maturities of 30 years or more, used to invest in the country's major strategies and key sectors. They are mainly used for scientific and technological innovation, integrated urban and rural development, regional coordinated development, food and energy security, and high-quality population development.

[Image source=Yonhap News]

Unlike general government bonds, which are used for the country's general fiscal expenditures and included in the fiscal deficit, special government bonds have the advantage of not being included in the fiscal deficit. Their long maturities make them similar to perpetual bonds, and the revenue generated from the investment sectors is typically used to repay the debt. Since there is no repayment burden through fiscal means, they are also free from the local government debt issues, which are considered a risk to the Chinese economy. The bond interest rates are set by the government and issued, unlike general government bonds which are issued at market rates through auctions. However, if the purpose and usage of the special government bonds are unclear or lack transparency, there is a risk of reduced trust in the bond market.

China first issued special government bonds worth 270 billion yuan in 1998 during the foreign exchange crisis to strengthen bank capital. Subsequently, it issued 1.55 trillion yuan in 2007 for the establishment of the China Investment Corporation, and 1 trillion yuan in 2020 during the COVID-19 pandemic for epidemic prevention and infrastructure projects.

Chinese Premier Li Qiang is delivering a speech at the 2nd session of the 14th National People's Congress (NPC), which is equivalent to the 'regular national assembly,' on the 5th.
[Image source=Yonhap News]

The ultra-long-term special government bonds to be issued this time will be the fourth in history, with a target issuance amount of 1 trillion yuan (approximately 185 trillion won) this year. Premier Li Chang revealed the issuance purpose at the annual government work report during the opening of the National People's Congress (NPC) on the 5th, stating that the funds will be invested in large-scale projects and support key strategic businesses. They are expected to be mainly allocated to local governments' urbanization and rural revitalization projects, as well as energy and supply chain businesses.

Within China, there is analysis that the ultra-long-term special government bonds issued this time will play an important role in achieving this year's economic growth target of around 5%. Yang Chang, an analyst at Zhongtai Securities, told the state-run English newspaper Global Times, "Fiscal policies this year, including the issuance of ultra-long-term special government bonds, will play a key role in supporting stable economic operation," adding, "They will financially support some of the major projects for national rejuvenation and the great national construction."