China to Issue Yuan 1 Trillion (USD 138 Billion) Long-Term Special Treasury Bonds

China’s finance ministry has confirmed that starting Friday 17th May 2024 Long-Term Treasury Bonds with a tenor of 30 years and a value of Yuan 40 Billion will be issued. Bonds with a tenor of 20 years and 50 years will be issued on 24th May 2024 and 4th June 2024 respectively, with the balance of the bonds with a tenor of 30 years being issued in November 2024. This confirms China’s bond announcement in March of this year, with the issuance being the first of its kind for 26 years.

The breakdown of the bonds are as follows,

20 Years  – Yuan 300 Billion

30 Years  – Yuan 600 Billion

50 Years – Yuan 100 Billion

Experts suggest that the Chinese government, which is facing pressure from weak consumer confidence and the on-going housing crisis, is increasing fiscal support to help the economy. The government may well use some of the funds to spend on infrastructure which will be key to hitting their annual growth target of 5%, with some experts suggesting that the boost to Gross Domestic Product could be as much as 1%. Analysts suggest the timing of the bond issue coincides with protectionist tariffs against Chinese goods by the United States, (the latest of which announced 14th May 2024)*, and is intended to offset any impact incurred by such tariffs.

US Protectionist Tariffs – The new measures affect $18 billion in imported Chinese goods including steel and aluminium, semiconductors, electric vehicles, critical minerals, solar cells and cranes, the White House said. The EV figure, while headline-grabbing, may have more political than practical impact in the U.S., which imports very few Chinese EVs.

Experts expect that the Chinese government will use the funds to move the economy away from the investment in infrastructure and property growth model which has caused the increases in debt held by local governments. Interestingly, if compared to a global standard, the Chinese economy has enough room to potentially issue over the next five to ten years bonds to the value in excess of three trillion yuan. Indeed, analysts advise that more long-dated bonds will be issued in the future to strengthen energy and food security sectors, as well as the manufacturing supply chain.

Recent data released showed that aggregate financing (a broad credit measure) shrank for the first time in April by circa Yuan 200 Billion (USD27.7 Billion), down from March, being the first decline since comparable data began in 2017, which reflects a contraction in financing activity. Data shows that in April financial institutions offered Yuan 731 Billion in new loans lower than the project figure 0f Yuan 916 Billion. Experts advise that the issuance of the Long-Term treasury bonds will increase credit expansion in both May and June whilst officials from China’s top commercial banks were recently summoned to the Ministry of Finance to arrange underwriting of the long-term bonds.