By Summary
- China plans record special treasury bonds for 2025.
- Funds to boost consumption, innovation, recapitalize state banks.
- Beijing aims to soften economic blow from expected U.S. tariffs.
Chinese authorities have agreed to issue 3 trillion yuan ($411 billion) worth of special treasury bonds next year, two sources said, which would be the highest on record, as Beijing ramps up fiscal stimulus to revive a faltering economy.
The plan for 2025 sovereign debt issuance would be a sharp increase from this year’s 1 trillion yuan and comes as Beijing prepares to soften the blow from an expected increase in U.S. tariffs on Chinese imports when Donald Trump returns to the White House in January. The proceeds will be targeted at boosting consumption via subsidy program, equipment upgrades by businesses and funding investments in innovation-driven advanced sectors, among other initiatives, said the sources.
People walk past a lane lined up with restaurants, at a shopping area in Shanghai, China September 28, 2024.
The sources, who have knowledge of the discussions, declined to be named due to sensitivity of the matter. The State Council Information Office, which handles media queries on behalf of the government, the Finance Ministry, and the National Development and Reform Commission (NDRC), did not immediately respond to requests for comment. The planned special treasury bond issuance next year would be the largest on record and underscores Beijing’s willingness to go even deeper into debt to counter deflationary forces in the world’s second-largest economy.
China does not generally include ultra-long special bonds in its annual budget plans, as it sees the instrument as an extraordinary measure to raise proceeds for specific projects or policy goals as needed. As part of next year’s plan, about 1.3 trillion yuan to be raised through long-term special treasury bonds would fund “two major” and “two new” programs, said the sources with knowledge of the matter.
The “new” initiatives consist of a subsidy program for durable goods, where consumers can trade in old cars or appliances and buy new ones at a discount, and a separate one that subsidizes large-scale equipment upgrades for businesses. The “major” programs refer to projects that implement national strategies such as construction of railways, airports and farmland and build security capacity in key areas, according to official documents.
Earlier this month, the state planner NDRC announced that the 1 trillion yuan raised through this year’s special treasury bonds had been fully allocated. About 70% of the funds were directed toward the “two major” projects, with the remaining amount supporting the “two new” schemes, according to official documents
A view of the financial district of Pudong is reflected on a bus passing by, in Shanghai, China September 27, 2024.
TARIFFS THREAT
Another big portion of the planned proceeds for next year will be directed toward investments in “new productive forces”, a term Beijing uses to describe advanced manufacturing sectors such as electric vehicles, robotics, semiconductors and green energy, the sources said.
One of the sources said the amount earmarked for this initiative would be more than 1 trillion yuan. The remaining funds would be used to recapitalize large state-owned banks, said the sources, as top lenders struggle with shrinking margins, faltering profits and rising bad loans.
The proposed issuance of special treasury bonds next year would amount to 2.4% of China’s 2023 gross domestic product (GDP). For comparison, in 2007, Beijing raised 1.55 trillion yuan through similar bonds, which equated to 5.7% of the GDP at that time.
President Xi Jinping and other top officials met at the annual Central Economic Work Conference (CEWC) on Dec. 11-12 to chart the economic course for 2025. A state media summary of that meeting said it was “necessary to maintain steady economic growth”, raise the fiscal deficit ratio and issue more government debt next year, but did not mention specific numbers.
The People’s Bank of China has come out in favor of trading bonds on the secondary market, indicating a more vigorous monetary policy is on the cards
Last week, Reuters reported, citing sources, that China plans to increase its budget deficit to a record 4% of GDP in 2025 while maintaining an economic growth target of around 5%.
At the CEWC, Beijing establishes targets for key economic indicators, including growth rates, the budget deficit, and debt issuance, for the coming year. These targets, agreed upon by top officials during the meeting, will be formally announced at the annual parliamentary session in March and may be adjusted beforehand.
China’s economy has faced significant challenges this year, including a deep property sector crisis, high local government debt, and weak consumer demand. Exports, one of the few strong sectors, are at risk as the U.S. considers tariffs exceeding 60% under pledges made by Donald Trump during his campaign.
While the risks to exports mean China will need to rely on domestic sources of growth, consumers are feeling less wealthy due to falling property prices and minimal social welfare. Weak household demand also poses a key risk.
Last week, Chinese officials said that Beijing plans to expand the consumer goods and industrial equipment trade-in programs to include more products and sectors.
On 24 September 2018, the US imposed a 10 per cent tariff on $200 billion worth of annual Chinese imports, with the tariff rate rising to 25 per cent beginning 1 January 2019. In addition, the US has threatened further duties on $267 billion worth of goods should China retaliate – which it did.
($1 = 7.2939 Chinese yuan)
Note: This story was updated to remove an extraneous word in paragraph 2.
