Experts say special bonds to stimulate economy

China's decision to issue 1 trillion yuan ($137 billion) of treasury bonds during the fourth quarter will help boost market confidence and further consolidate the foundation for economic recovery, marking the country's latest step to stimulate the world's second-largest economy, officials and experts said on Wednesday.

Experts said the new move highlighted the country's resolve to stabilize growth, suggesting that China will likely make its policies more expansionary next year with an anticipated annual growth target of around 5 percent for 2024, same as this year's.

Looking into the remainder of this year, they said they expect the People's Bank of China, the country's central bank, to further lower the amount of deposits banks have to set aside as reserves, which will release more liquidity into the nation's financial system.

Zhu Zhongming, vice-minister of finance, said the funds raised will be used to support the rebuilding of disaster-hit areas and construction projects to boost China's ability to withstand disasters.

He told a news briefing in Beijing on Wednesday the move will not only help address the weak links and improve people's livelihoods, but also boost domestic demand and further consolidate the recovery trend.

Zhu said the move will expand China's fiscal deficit to around 3.8 percent for the year, up from 3 percent.

According to the plan approved by the country's top legislature on Tuesday, bond proceeds will all be allocated to local regions, via the mechanism of transfer payment.

Around 500 billion yuan is planned to be utilized within the year, while the remaining half-trillion yuan will be used next year.

"It is anticipated that the additional bond issuance will provide further support for the broad fixed asset investment and economic expansion in the fourth quarter and the following year. Moreover, earmarking the funds will, to some extent, alleviate the regional imbalance in infrastructure investment in China," said Zhou Wenyu, associate director of corporates at Fitch Bohua, a ratings agency.

Latest data from the Ministry of Finance showed the expenditures in the national general public budget grew by 3.9 percent year-on-year in the first nine months of the year, while government-managed fund expenditures experienced a 17.3 percent year-on-year decrease during the same period.

Against that background, the measures to increase leverage by issuing additional treasury bonds and transferring all their proceeds to local governments will help alleviate the expenditure pressure on local governments and optimize the structure of fiscal spending and debt, Zhou said.

Xiong Yuan, chief economist at Guosheng Securities, said the additional fiscal support aims to stabilize growth and boost confidence, and the widened budget deficit signals China's pro-growth stance next year.

Xiong's views were echoed by Feng Jianlin, chief economist at Beijing FOST Economic Consulting Co, who said the new move will help stabilize the economy at the beginning of next year, estimating the country will set its 2024 GDP growth target at around 5 percent.

To ease liquidity pressures, another cut in the reserve requirement ratio may be possible in the current quarter, Feng said.

In an exclusive interview with China Daily a few days ago, Justin Yifu Lin, dean of the Institute of New Structural Economics at Peking University, said China still has large scope for fiscal expansion in order to adopt counter-cyclical measures and add steam to the economy, as China's debt level is quite light compared to international standards.

"With the fiscal stimulus, we can generate more investment demand, which can benefit the private sector, and build their confidence for investment," he said.