China Unleashes Economic Stimulus Measures
China is taking significant steps to stimulate its flagging economy. The finance ministry has confirmed plans to issue CNY 1tn (USD 138 billion) worth of ultra-long special sovereign bonds beginning this week, marking the fourth such issuance in 26 years. The overall issuance will consist of CNY 300bn of 20-year bonds, CNY 600bn of 30-year bonds, and CNY 100bn yuan of 50-year bonds.
The central government will kick off this flurry of bond sales on Friday by issuing CNY 40bn (USD 5.5bn) worth of 30-year bonds, according to a notice from the Ministry of Finance. Subsequent tranches will be rolled out through to November 15.
This marks the fourth issuance of such ultra-long bonds in 26 years and comes after the plan was first announced in March. The ultra-long bond sales are part of broader coordinated efforts to bolster growth through fiscal stimulus and strategic investment, as outlined by Premier Li Qiang. He urged officials to effectively utilise the funds to implement major economic policies, build security capabilities in key areas, and better coordinate government and private capital.
The timing of the bond issuance coincides with disappointing April credit data that showed a record low expansion in total social financing, highlighting the need to spur lending and investment. The issuance is also likely timed to offset the potential impact of threatened US tariffs on Chinese goods and uncertainty ahead of a key Communist Party meeting on reforms in July.
Market impact was muted as the bond sales were widely anticipated. However, some expect the supply could prompt the central bank to provide liquidity support through measures such as interest rate and reserve requirement ratio cuts to facilitate bond buying.
After a sluggish start to 2023, Beijing has stepped up its push for local governments to accelerate bond issuance to fund infrastructure and other growth-boosting projects. The ultra-long bonds add a crucial financing source, though analysts caution it will take time for the funds to filter through to the real economy amid subdued loan demand.
In addition to the sovereign bond issuance, two of China's biggest state banks, Industrial & Commercial Bank of China Ltd. and Bank of China Ltd., will sell a combined CNY 60bn (USD 8.3 billion) of total loss-absorbing capacity (TLAC) bonds this week. This marks the first such debt sales by Chinese lenders in a drive to replenish capital and support growth in the world's second-largest economy.
The funding push is the latest effort by the nation's largest lenders to beef up capital strength to meet global requirements by early 2025. It comes at a time when Beijing is eager to guide lenders to ensure credit supply and lower funding costs for businesses, further straining their depressed margins and profitability.
Government spending on infrastructure projects, which could be funded by these bonds, will be crucial in ensuring China hits its annual growth target of around 5%. While exports remain a relative bright spot, domestic demand remains weak despite the economy growing 5.3% in Q1.
Lastly, get ready for a luxury shopping extravaganza, China style! The tropical island of Hainan is gearing up to become the world's biggest duty-free retail paradise. Goodbye, sky-high taxes on designer goodies - hello, tax-free splurging sprees! With glitzy new mega-malls, VIP amenities, and brands galore setting up shop, Hainan is rolling out the red carpet for shoppers. Who needs overpriced European boutiques when you can snag luxury goods and more at island prices?
If you would like to receive The Daily Update to your inbox, please email markets@epicip.com or click the link below.