News
China says it will sell initial batch of long-term bonds this week
The debt crisis in China’s vast real estate sector has been a major drag on the world’s No. 2 economy (STR)
China will begin selling an initial batch of long-term bonds this week, the Finance Ministry announced on Monday, as Beijing looks to increase support for the world’s second-largest economy.
The central government will begin issuing some 30-year bonds on Friday as part of a planned sale of more than $138 billion in debt, according to a notice posted on the ministry’s website.
Other bonds with 20- and 50-year maturities will go on sale on May 24 and June 14, respectively.
The Ministry of Finance did not specify the number of bonds that will be issued.
A volatile property market and high unemployment – especially among young people – are key issues dragging down China’s economy.
Leaders have set a target of around five percent for growth this year, a figure considered ambitious by many economists.
Bond sales are expected to boost that growth number by one percentage point, Xing Zhaopeng of Australia and New Zealand Banking Group told Bloomberg.
The measure was suggested in recent months by Beijing, with Prime Minister Li Qiang stating in March that such measures would be used to support large projects of strategic importance.
“The main result of this issuance will be the replenishment of capital for domestic banks, because the majority of these bonds will be held by banks,” Dan Wang, chief economist at Hang Seng Bank China, told AFP.
“Given the contraction in new bank credit issuance, we are likely to see more long-term bond issuance in the future,” Dan said.
“This will not help solve the liquidity problem in the market, but will only reduce the cost of long-term financing for government projects,” he added.
China has only sold these types of government bonds on a handful of occasions in the face of major economic headwinds, such as in early 2020 to help finance efforts to combat the pandemic.
– Persistent risks –
Consumer prices in the country have been in positive territory for three consecutive months, official data showed on Saturday, but domestic spending remains relatively weak.
Real estate development once served as a key engine of growth in the country, but rising debt at several of the sector’s largest companies in recent years has caused activity to stagnate.
The crisis is being exacerbated by falling house prices and consumers’ growing caution in investing in property.
Authorities responded on Thursday by lifting previous restrictions on home purchases in certain areas, including in the major cities of Hangzhou and Xi’an, in a bid to stimulate purchases.
At China’s annual parliament in March, leaders were candid about the headwinds facing the economy, pledging to unveil several measures this year to boost growth.
The story continues
Premier Li said at the time that achieving growth targets this year “would not be easy”, given the “persistent risks and hidden dangers” still present in the economy.
And Housing Minister Ni Hong said on the sidelines of the meeting that resolving the housing crisis would also be a challenge, adding that property companies that “need to go bankrupt should go bankrupt, and those that need restructuring should be restructured “.
Youth unemployment soared to an unprecedented 21.3% in mid-2023, before authorities stopped publishing monthly figures.
Investors called for much greater action from the central government in order to shore up the flagging economy.
pfc/oho/dan