China to Sell 750 Billion Yuan in Bonds to Boost Economy – The Economic Times*

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China will sell 750 billion yuan ($108 billion) worth of special sovereign bonds next week in a significant ramping up of stimulus to support a struggling economy.

China will sell 750 billion yuan ($108 billion) worth of special sovereign bonds next week in a significant ramping up of stimulus to support a struggling economy.

The bonds, a rarely used financing tool that was used during the 2020 pandemic slump, will help to “support economic and social” development, the Ministry of Finance said on Friday. The bonds are not the same as regular sovereign bonds.

The notes will be sold on Dec. 12, and issued to designated domestic banks in the interbank bond market, according to the statement posted on the MOF’s website late Friday. The People’s Bank of China will carry out open market operations with relevant banks, it added. That implies the central bank will likely provide liquidity support for the banks to buy the bonds.

The Ministry didn’t specify whether the bonds are new or to refinance notes coming due. China has special bonds worth 750 billion yuan maturing on Dec. 11, according to data compiled by Bloomberg. The notes were part of the debt sold in 2007 to capitalize China Investment Corp., the country’s sovereign wealth fund.

“If these means additional funds, it suggests a highly proactive economic policy for 2023 – confirming the stance alluded to at the Politburo conference,” said Becky Liu, head of China macro strategy at Standard Chartered Bank. “Just the size and dates are making it very confusing — the maturing special bond is widely expected to be rolled over.”

Chinese leaders have pledged to seek an “overall improvement” in the economy next year as they move away from the Covid Zero strategy. Government-linked economists have called for more sovereign bonds to be issued to fill the fiscal gap and stimulate economic growth, which is expected to slow to the weakest since the 1970s barring the pandemic slump in 2020.

“Shifting away from zero Covid is likely to cause economic volatility over the next couple of quarters, and additional fiscal support will likely be needed,” said Adam Wolfe of Absolute Strategy Research. “This seems to signal that the Ministry of Finance will carry a larger share of the burden, likely because some local governments are bumping up against their debt constraints.”

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