China's financial policymakers have agreed to issue a record amount of special government bonds totaling 3 trillion yuan ($411 billion) next year to try to revive the struggling economy.
Sources told Reuters that Beijing is eager to step up fiscal stimulus to boost an economy weighed down by a protracted housing crisis and weak consumption.
The sovereign debt issuance plan for 2025 will triple this year's 1 trillion yuan, as Beijing prepares to mitigate the impact of the debt crisis. U.S. tariffs on Chinese imports expected to increase under Donald Trump's return Headed to the White House in January.
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Proceeds will be used for Promote consumption through subsidy schemesMeasures include upgrading equipment at companies and providing funds for investment in innovation-driven advanced industries, sources said.
A source with knowledge of the discussions declined to be named because of the sensitivity of the matter.
The State Council Information Office, which handles media inquiries on behalf of the government, finance ministry and National Development and Reform Commission (NDRC), did not immediately respond to a Reuters request for comment.
After the news broke, China's 10-year and 30-year government bond yields rose by 1 basis point and 2 basis points respectively.
The planned issuance of special bonds next year would be the largest ever and underline Beijing's willingness to deepen debt in response to deflationary forces in the world’s second largest economy.
China generally does not include ultra-long-term special bonds in its annual budget plans because it views the instrument as an extraordinary measure to raise funds for specific projects or policy objectives as needed.
People familiar with the matter said that as part of next year's plan, about 1.3 trillion yuan raised through long-term special government bonds will be used to fund the “two major” and “two new” projects.
Equipment upgrades, advanced manufacturing
These “new” initiatives include a durable goods subsidy program that allows consumers to trade in old cars or appliances and buy new ones at a discount, and a separate subsidy program that subsidizes large-scale equipment upgrades by businesses.
According to official documents, “major” projects refer to projects that implement national strategies such as railways, airports, and farmland construction, as well as build safety and security capabilities in key areas.
The National Development and Reform Commission stated on December 13 that this year's 1 trillion yuan of ultra-long-term special government bond funds have been fully allocated, about 70% of which is used for the “two major” projects, and the remaining funds are used for the “two new” projects.
Another large portion of planned earnings next year will be invested “New Productivity”Sources said this is Beijing’s shorthand for advanced manufacturing industries such as electric vehicles, robots, semiconductors and green energy.
One source said the measure would be earmarked for more than $1 trillion.
Support bank
Sources said the remaining proceeds will be used to recapitalize major state banks as top lenders face shrinking profits, falling profits and rising bad loans.
Newly issued special government bonds next year will be equivalent to 2.4% of the country's gross domestic product (GDP) in 2023. In 2007, Beijing raised 1.55 trillion yuan through such bonds, equivalent to 5.7% of China's economic output at the time.
On December 11 and 12, President Xi Jinping and other senior officials met at the annual Central Economic Work Conference to plan the direction of economic development in 2025.
A state media summary of the meeting said it was “necessary to maintain stable economic growth”, increase the fiscal deficit ratio and issue more government debt next year, without mentioning specific figures.
Reuters quoted sources last week as saying that China plans to increase the budget deficit to a record 4% of GDP next year and maintain an economic growth target of around 5%.
At the CEWC, Beijing laid out its economic growth, budget deficit, debt issuance and other goals for the year ahead. The targets, usually agreed at meetings by senior officials, are not formally announced until the annual parliamentary meeting in March and could still change before then.
China's economy has struggled this year due to a severe real estate crisis, high local government debt and weak consumer demand. One of the few bright spots is exports, which could soon face U.S. tariffs of more than 60% if Trump follows through on his campaign promises.
While export risks mean China will need to rely on domestic sources of growth, consumers are feeling less wealthy due to falling property prices and meager social benefits. Household demand weakens also poses a key risk.
Last week, Chinese officials said Beijing planned to expand trade-in programs for consumer goods and industrial equipment to cover more products and industries.
- Reuters Additional editing by Jim Pollard
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