In this illustration taken on February 10, 2020, Chinese Yuan banknotes can be seen behind an illuminated stock price graph.Reuters/Dado Ruvic/Illustration Obtaining license rights
BEIJING, Oct 25 (Reuters) – China’s new sovereign debt will help boost economic recovery, Vice Finance Minister Zhu Zhongming said on Wednesday, as Beijing’s fiscal deficit soars as it ramps up fiscal stimulus. .
Chinese state media said Tuesday that China’s top parliamentary body has announced a 1 trillion yuan ($137 billion) package to help rebuild areas affected by this year’s floods and improve urban infrastructure to cope with future disasters. It was reported that the issuance of government bonds had been approved.
“After utilizing the government bond funds, it will promote domestic demand and further solidify the economic recovery,” Zhu said at a press conference.
The world’s second-largest economy posted better-than-expected growth in the third quarter, raising the possibility that Beijing will meet its 2023 growth target of around 5%. But economists say the crisis-hit real estate sector remains a drag on the economy, which will continue to grow. Growth prospects are clouded.
According to state media, China has taken an unprecedented step to sharply raise its budget deficit for 2023 from the originally set 3% of gross domestic product (GDP) to around 3.8% of gross domestic product (GDP), citing rising central government debt.
The proposed increase in bond issuance comes as Beijing prepares to introduce new fiscal stimulus to boost economic recovery, but could lead to a return to debt-based stimulus, policymakers said. There are concerns that the model could undermine the transition to consumer-led economic growth.
Some analysts downplay the positive short-term economic impact of new government bond issuance.
“We believe the economic impact of this additional 1 trillion yuan in CGB (Chinese government bonds) should not be overestimated, especially in the short term,” Ting Lu, Nomura’s chief China economist, said in a note. Ta.
“The fiscal multiplier effect of spending on water conservation projects is likely to be quite limited.”
Zhu said China will reasonably set the pace of bond insurance and match issuance and spending, adding that authorities will take measures to prevent the misuse of bond funds.
The minister said government debt levels remained within a reasonable range, but did not elaborate.
Some policy advisers say the central government has room to increase spending because its debt-to-gross-domestic-product (GDP) ratio is just 21%, much lower than local governments’ 76%.
According to state media, half of the proceeds from the bond issue will be used this year and the other half next year.
Analysts at UBS expect the government to further lower interest rates and bank reserve requirements, as well as raise the fiscal deficit and special municipal bond limits in 2024.
China’s parliament also approved a bill that would allow local governments to bring forward some of their 2024 local bond allocations.
Local governments had been instructed to complete the issuance of 3.8 trillion yuan of special local bonds by September, with a deadline of 2023, to fund infrastructure projects.
(1 dollar = 7.3098 Chinese Yuan)
Reporting by Ellen Zhang and Kevin Yao.Edited by: Christopher Cushing and Sri Navaratnam
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