China initiates $140 billion debt sale to stimulate economy

Chinese authorities have launched a massive plan to sell Rmb1tn ($140bn) of long-dated bonds in an effort to stimulate the economy. The People’s Bank of China has initiated the sale, seeking advice from brokers on pricing the first batch of sovereign bonds.

This move comes as Beijing aims to boost spending and support critical areas of investment to drive economic growth in the second quarter. The bond sale was announced during the annual session of China’s legislature in March, with the goal of reinforcing economic momentum amid a prolonged property crisis.

Liu Sushe, deputy head of the National Development and Reform Commission, emphasized the importance of the bond sale in supporting essential projects for the modernization of the economy. The funds raised will be directed towards long-term projects while alleviating the debt burden of local governments.

The sale of these long-dated bonds follows similar actions taken in 2020 to combat the effects of the Covid-19 pandemic and boost infrastructure investments. The current bonds are expected to have even longer maturities, signaling a strategic shift in China’s debt structure.

Experts believe that the issuance of these bonds will improve liquidity in the market for longer-dated Chinese bonds and support the government’s efforts to reshape its debt structure. The move is seen as crucial for China’s economic transformation away from a growth model reliant on property and infrastructure investment.

With plans for more long-dated bonds in the pipeline, China is gearing up for a significant shift in its borrowing strategy to drive investments in key sectors like food security, energy, and manufacturing supply chains. The bond sale is expected to kick off on Friday, with the finance ministry coordinating the underwriting process with top commercial banks.