China137 Billion Dollar Sovereign Bond: China’s new sovereign bonds are set to invigorate the economic recovery, according to Vice Finance Minister Zhu Zhongming. The government’s bolstered fiscal stimulus, marked by a significant budget deficit increase, aims to aid flood-hit areas and enhance urban infrastructure resilience. Zhu stated that the issuance of treasury bond funds will drive domestic demand and further solidify the economy’s recovery.
China’s economy beat predictions in the third quarter, strengthening its chances of meeting its 2023 5% growth objective. The property sector’s woes continue to cloud the economy’s growth outlook. Due to rising central government debt, China unexpectedly increased its 2023 budget deficit to 3.8% of GDP from 3%.
The proposed increase in bond issuance coincides with Beijing’s preparation for a fresh fiscal stimulus to support the economic recovery. Still, some are concerned that reverting to debt-funded stimulus might undermine the shift toward a consumer-led economic growth model. Analysts, such as Ting Lu, Chief China Economist at Nomura, believe that the immediate economic impact of the 1 trillion yuan in additional Chinese government bonds should not be overstated, especially in the short term.
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China plans to align the pace of bond issuance with spending and take measures to prevent misuses of bond funds. The government’s debt level remains within a reasonable range, according to Zhu, without specifying further. Some policy advisers suggest that the central government has room for increased spending since its debt as a percentage of GDP is much lower than that of local governments.
Half of the funds raised through the bond issuance will be allocated this year, with the remainder to be used in the following year. UBS analysts anticipate the government to raise its budget deficit and special local bond quotas for 2024, along with further interest rate cuts and reductions in bank reserve requirement ratios.
Additionally, China’s parliament approved a bill allowing local governments to frontload part of their 2024 local bond quotas. Local governments were instructed to complete the issuance of the 2023 quota of 3.8 trillion yuan in special local bonds by September to finance infrastructure projects.
Our Reader’s Queries
What is the 1 trillion bond issue in China?
In a surprising move, the Chinese government announced in October that it would be releasing an additional 1 trillion yuan ($141 billion) in sovereign bonds during the fourth quarter. This decision was made to fund infrastructure spending, but it also means that the budget deficit as a percentage of GDP for 2023 will reach a record high of 3.8%. This move is a rare one for the Chinese government and will have significant implications for the country’s economy.
Did China sell $21 billion in US Treasuries?
According to the US Treasury, Chinese investors have sold a staggering $21.2 billion worth of US equities and Treasuries. In August alone, they sold a record-breaking $5.1 billion of US stocks. This coincided with the onshore yuan’s decline against the dollar, hitting its lowest point since November.
How much money does China owe the United States?
The United States owes China a whopping $859.4 billion in debt, making China one of its biggest creditors. However, it’s worth noting that China isn’t the foreign country that owns the most U.S. debt. The practice of nations borrowing from each other has been around since the dawn of money.
What happens when China sells US bonds?
China’s massive holdings could potentially cause a stir in the U.S. bond market if they decide to sell, leading to a surge in interest rates. While some experts, like Slok, believe this to be the case, others argue that China could simply transfer their holdings to foreign custodians instead of selling them. Regardless, the possibility of China’s actions affecting the bond market remains a concern.