China considering increasing local debt sales to boost stimulus

Chinese yuan/Bloomberg

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China growth continued to soften in July after posting the weakest pace since the early 1990s in the second quarter.

Tuesday 20, August 2019

China is considering allowing provincial governments to issue more bonds for infrastructure investment, a move that would boost government stimulus as the economy continues to decelerate, reported Bloomberg.

Policymakers may raise the annual quota for so-called special bonds from the current level of CNY 2.15 trillion ($305 billion). The amount of the increase hasn’t been decided yet.

One person said the plan was mentioned at a recent meeting of the State Council, while another said the final decision probably still needs to be approved by the National People’s Congress, China’s legislature.

The move shows that policymakers deem the current level of stimulus insufficient to counter rising headwinds such as slowing investment and the worsening trade war with the US. The quota for 2019 is already higher than the previous year, and the government loosened the restrictions over how the money could be used in June.

Economists have raised questions over whether the money is actually being used effectively.

Morgan Stanley estimates that extra special-bond quota worth 0.75 to 1 percentage point of gross domestic product could be added. That adds to the reform to central bank rate system beginning this week, which is expected to entail lower borrowing costs in the short term.

Local governments have been told to finish sales of the existing quota by the end of September. According to data from the Ministry of Finance, officials had sold nearly CNY 1.4 trillion worth of special bonds in the first six months of 2019, or 65 per cent of the full-year quota.


TAGS : bond issuance, Chinese yuan, US-China Trade tension, stimulus

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