The plan, which was approved by the country’s top legislature on Tuesday, evidently helped boost market expectations and confidence in the Chinese economy, as major Chinese stock indexes made gains on Wednesday. The move underscores Chinese policymakers’ resolve and ability to navigate serious downward pressures and keep the Chinese economy stable, analysts said.
Highlighting the swift efforts to increase bond issuance, the Chinese Ministry of Finance (MOF) announced on Wednesday that it has issued yuan-denominated treasury bonds worth 16 billion yuan in the Hong Kong Special Administrative Region. The issuance was met with great enthusiasm from investors, and was 2.44 times oversubscribed, the ministry said in a statement.
The MOF did not say whether the issuance was related to the 1-trillion-yuan plan. At a news conference on Wednesday, officials from the MOF and the National Development and Reform Commission (NDRC), the top economic planning agency, vowed to swiftly carry out the plan.
The MOF will “timely start the issuance of treasury bonds, better allocate budget funds, continue to follow up and strengthen the supervision of treasury bond funds, and effectively improve the efficiency of the use of treasury bond funds,” Zhu Zhongming, vice minister of finance, told the news conference on Wednesday.
On Tuesday, the sixth session of the Standing Committee of the 14th National People’s Congress approved the issuance of additional 1 trillion yuan in special treasury bonds. The funds will be used in eight specific areas, including post-disaster reconstruction, key flood prevention projects and high-standard farmland construction.
A Xinhua report said that in connection with the new bond issue, there will be a corresponding adjustment to the central government’s budget in 2023. China’s fiscal deficit will rise to 4.88 trillion yuan from 3.88 trillion yuan this year, which means that the fiscal deficit ratio would jump to 3.8 percent from 3 percent.
This is only the fourth time that China has raised the budget deficit ratio, with the previous three times carried out to help stabilize the economy during special times, including following the Asian financial crisis in 1998, coping with aftershock from massive floods and the financial crisis in 1999 and insufficient demands in 2000, according to CITIC Securities, noting that such a move could offer a significant boost to the economy.
Zhu also said that while the funds will be focused on projects to fix weak links and improve livelihoods, “certainly, with the treasury bond funds put into use, it will objectively help drive domestic demand and further consolidate the positive recovery trend of China’s economy.”
Analysts said that the move will not only help boost market expectations and confidence but will actually help ensure stable economic growth in the fourth quarter of 2023 as well as in 2024.
“The 1-trillion-yuan bond issuance helps directly alleviate debt pressures, indirectly boost market confidence and dispel investors’ concerns,” Hu Qimu, a deputy secretary-general of the digital-real economies integration Forum 50, told the Global Times on Wednesday.
Underscoring the improving market sentiment, major stock indexes closed higher on Wednesday, with the Shanghai Composite Index up 0.4 percent and the Shenzhen Component Index up 0.47 percent. While the gains were relatively moderate, they are significant given that Chinese stocks have been on downfall in recent weeks, with the benchmark Shanghai index falling below the psychologically important level of 3,000 last week.
Accelerating recovery
More than a boost in expectations, the plan will also directly help lift domestic demand and drive up economic growth in the fourth quarter, according to Cong Yi, a professor from the Tianjin University of Finance and Economics.
Cong told the Global Times the funds will be used in projects in disaster-hitting areas, which will help local governments address their debt issues and stabilize the economy. “It is an important macroeconomic measure to ensure stable economic growth in the fourth quarter,” he said, refuting certain foreign media claims that “the debt plan isn’t necessarily such a big deal.”
Cao Heping, an economist at Peking University, reckoned that the 1 trillion yuan bonds, half of which will be used in the fourth quarter and the other half next year, will also likely draw more investment from banks and localities and could add 0.3 percentage points to GDP growth rate in the fourth quarter of 2023 and the first quarter of 2024.
“With both monetary and fiscal policy support at the end of the year, the 1-trillion-yuan bond plan will be very effective” in boosting economic growth, Cao told the Global Times on Wednesday.
After a forecast-beating GDP growth in the third quarter, expectations are rising for even faster growth in the fourth quarter, thanks to a raft of policy measures Chinese policymakers have taken to stabilize growth. Many domestic and foreign institutions have raised forecasts for China’s GDP growth in the fourth quarter. US-based Citigroup, for example, now expects China’s GDP to grow by 5.3 percent, up from the previous 5 percent.
Chinese officials and analysts also refuted claims of government debt risks in China, as the new bond plan would lift the country’s fiscal deficit ratio in 2023 to about 3.8 percent, which is high in historical terms, from the previously set target of 3 percent this year.
“Although the deficit ratio has increased slightly this year, the debt ratio of the Chinese government is still within a reasonable range, and the overall risk is controllable,” Zhu said, adding that the move will also drive domestic demand and further consolidate the trend of China’s economic recovery.
Analysts also pointed out that the Chinese government is very prudent in making such a plan, which is very targeted at specific problems and very effective in helping to stabilize the economy.
Funds from the additional bond issuance will help local governments cover reconstruction after disasters, which will also boost demand and ultimately the economy, and that will in turn generate tax and other revenues for local governments to address debt issues, Cong said. “It creates a very positive circulation, so the special bonds are very necessary,” he said.
