China will issue a 2022 special bond worth CNY750 billion on December 12 to boost the economy, as optimized Covid-19 measures send the world's second-largest economy on the fast track to a rebound. Observers said the rare issuance, which usually serves financing needs for specific major national projects during critical times, is a significant policy signal from the central government, It is expected the funds will lay the ground for a sound recovery and lift market expectations across China. The issuance aims to raise funds for the development of the national economy and social undertakings, read a statement on the website of China's Ministry of Finance (MOF). The notes are three-year fixed-rate interest-bearing bonds that will be issued to relevant domestic banks in the inter-bank bond market. They can also be publicly traded, MOF said. The bonds are to refinance notes coming due on December 12.
“The issuance comes at a very special time, with China's accelerating resumption of economic activities and the market needing more stimulus,” Dong Dengxin, Director of the Finance and Securities Institute of the Wuhan University of Science and Technology, told the Global Times. He noted that unlike regular government debt, special treasury bonds are “special budget” that are not included in deficit calculations but earmarked for specific major projects at “special times,” which are often closely related to solving major financial or reform issues. The first three issuances were in 1998, 2007, and 2020, with amounts of CNY270 billion, CNY1.55 trillion, and CNY1 trillion, respectively. The CNY1 trillion of notes in 2020 were launched early in the pandemic. Some CNY700 billion from that sale was given to local governments to support their anti-epidemic efforts and infrastructure investment, while the rest was brought into the central government's general public budget, according to a report by MOF.
In 1998, during the Asian financial crisis, all the CNY270 billion in funds raised by the special treasury bonds – the nation's biggest issuance at that time – were used to supplement the capital of its four major state-owned banks. The notes issued in 2007 were used to purchase about USD200 billion in foreign exchange to capitalize China Investment Co, the sovereign wealth fund. The issuance at this time will likely be assigned to all industries, including infrastructure, that could stimulate economic growth, and signals that China has indeed gone through the most difficult period and is embarking on a fresh journey of recovery, Dong said.
At the local level, fundraising is also accelerated. Local governments in China issued CNY439.9 billion in new special-purpose bonds in October, up from CNY24.1 billion in September and CNY51.6 billion in August. In the first 10 months of 2022, these issues totaled CNY3.98 trillion, which means the annual quota has been completed ahead of time, the Global Times reports.
