Chinese authorities have launched a plan to sell 1 billion RMB ($140 billion) of long-term bonds, as Beijing steps up spending to boost the economy.
The People’s Bank of China has sought advice from brokers on the price of selling the first batch of sovereign bonds, according to two people who received inquiries.
The Chinese government announced plans to sell bonds during the annual session of the country’s legislature in March, saying it would support investment in key areas and strengthen economic momentum in the second quarter amid a long crisis. real estate in the country.
“The bond sale is an essential part of concerted efforts to support important, urgent and ambitious projects that are key to modernizing the economy,” said Liu Sushe, deputy head of the National Development and Development Commission. reform, during a public press briefing in mid-April.
“These are all projects that have been envisaged for a long time but have not been brought to fruition and which require impetus at the central level. »
The sell-off comes after China’s regional banks invested in long-term sovereign bonds in the first quarter of this year – pushing the cost of government borrowing to historic lows – as they seek refuge from the volatility in Chinese stock and real estate markets.
China sold similar long-term bonds in 2020, when RMB 1 billion was raised to try to control the Covid-19 pandemic and boost infrastructure investment. The bonds sold this time are expected to have even longer maturities, in order to finance long-term projects while easing the debt burden on local governments.
The new bonds differ from normal government bonds in that the money raised is earmarked for targeted purposes. This is the fourth round of special sovereign bond issuance, following a sale in 1998 to recapitalize state banks and in 2007 to create its sovereign fund.
These sales are expected to improve liquidity in the market for longer-term Chinese bonds, which investors have historically tended to hold until maturity.
China is trying to move its economy away from a growth model fueled by investment in real estate and infrastructure, which has caused local government debts to balloon.
The bond sale “comes at a crucial time for China to reshape its debt structure,” said Jameson Zuo, director of Hong Kong-based CSPI Credit Rating Co, referring to Beijing’s strategy of relying more on central government borrowing while trying to tackle the mountain. of the debt of local authorities.
“By a global standard, China still has significant room, potentially worth billions of yuan of bond issuance over the next five to 10 years, to allow the central government to exert more leverage and stimulate investment,” Zuo added.
More long-term bonds are expected to be issued in coming years to strengthen key areas such as food security, energy and the manufacturing supply chain, Premier Li Qiang said this year.
The first batch of new bonds to be issued will be worth between Rmb80 billion and Rmb100 billion, according to two people who have received requests from the central bank. Most will have maturities of 30 years, but there will also be 50-year bonds, they said.
The Ministry of Finance will convene officials from the country’s main commercial banks on May 13 to organize the subscription of long-term bonds, according to an internal notice sent to certain banks and consulted by the Financial Times.
The sale plans have been submitted for review to the State Council and China’s cabinet, while the Ministry of Finance and the National Development and Reform Commission are also involved in coordinating the sale.
The PBoC hinted in April that it would also consider buying these bonds in the secondary market when the time comes, which “will allow it to better control interbank rates”, said Zhi Xiaojia, head of Asia research at Credit Agricultural.
She predicted the sale would begin in June and be finalized in the third quarter.
Zhi said investors “should have already been fully prepared for the resumption of government bond offerings from the end of the second quarter (second quarter)”, after China’s Politburo, its main decision-making body composed of 24 members, said in late April that such a sale should begin “as soon as possible” to finance stimulus measures and stimulate demand.
The People’s Bank of China has repeatedly warned this year of the dangers of a high concentration of long-term bond trading, which could make small banks that have accumulated bonds this year more vulnerable to fluctuations in interest rates, which could lead to a Silicon Valley-style collapse.
The yield on China’s 30-year bonds, which moves inversely to prices, has stabilized around 2.5 to 2.6 percent, its lowest level in decades, after a sharp decline from more than 3 percent last year.
The upcoming bond issuance will help meet demand and likely support the central bank’s goal of moderately raising long-term yields, said Ming Ming, chief economist at Citic Securities.
However, CSPI’s Zuo said yields could remain “stable” even after the bond sale, as a shortage of other investable assets would encourage investors to continue buying sovereign bonds.
The central bank, Finance Ministry and NDRC did not immediately respond to requests for comment.
News Source : www.ft.com
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