China considers $220 billion stimulus with unprecedented bond sales

China’s finance ministry is considering allowing local governments to sell 1.5 trillion yuan ($220 billion) of special bonds in the second half, an unprecedented acceleration of infrastructure financing meant to prop up the beleaguered economy. country.

Bond sales would be brought forward of next year’s quota, according to people familiar with the discussions, who asked not to be identified because they are not authorized to speak publicly. It would be the first time that issuance has been accelerated in this way, underscoring growing concerns in Beijing about the dire state of the world’s second-largest economy.

Previously, local governments didn’t start selling debt until January 1, when the new budget year begins. Therefore, the proposal to adjust that timetable should be reviewed by the State Council and may also need the approval of the country’s legislative body, the National People’s Congress.

The debt would be used primarily to pay for infrastructure spending, an old playbook that policymakers are using to boost an economy battered by Covid shutdowns and a housing slump. The funding would come on top of 1.1 trillion yuan in new infrastructure support announced in recent weeks as the Xi Jinping government tries to get the economy back on track to achieve its annual growth target of around 5.5% .

China’s Finance Ministry and National Development and Reform Commission did not immediately respond to faxed requests for comment.

Each year, local governments receive a quota on how many general and special bonds they can sell. Until 2018, provinces and cities would wait for the NPC meeting in March to officially approve that fee before starting to sell the bonds, meaning the money would not be spent until much later in the year.

Starting in 2019, the central government began issuing the installments earlier so that local authorities could start selling the debt as soon as possible after the new year began. In December last year, the Ministry of Finance said it had already issued nearly 1.5 trillion yuan of 2022 installments, and then pushed for all bonds worth 3.65 trillion yuan to be quickly sold and will use this year.

By the end of June, most of those bonds were sold, meaning there is room in the second half of the year to sell more debt if the government wants.

In 2018, the NPC allowed the State Council to start awarding some of the following year’s bond installments early, but did not mention the timing of the sales. That means allowing the use of the 2023 quota this year may first need NPC approval, possibly at one of its regular standing committee meetings.

Separately, the NDRC, the country’s top economic planning body, is asking regional authorities to submit plans for projects by 2023 as soon as possible, people with knowledge of the matter said.

While it’s normal practice for local governments to make proposals for the coming year, that process normally begins in the last quarter of each year, one of the people said. Some provinces have been told to start new projects when feasible, even if construction was originally scheduled to begin next year, one of the people said.

The government’s growth target for 2022 looks increasingly challenging amid Covid spikes and a housing downturn. Economists surveyed by Bloomberg forecast that the economy will grow 4.1% this year.

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