China Considers $220 Billion Stimulus With Unprecedented Bond Sales

The Ministry of Finance is considering allowing local governments to sell over a trillion dollars of bonds in the second half of the year in order to bolster the economy.

The bond sales would be brought forward from next year's quota according to people familiar with the discussions who asked not to be identified because they aren't authorized to speak publicly. It would be the first time that the issuance has been fast-tracked in this manner.

Local governments used to sell the debt before the new budget year started. The State Council would have to review the proposal before it could be approved by the National People's Congress.

Policy makers use debt to pay for infrastructure spending in order to boost an economy hit by Covids and a housing slump. Over the past few weeks, new support for infrastructure has been announced, as the government tries to get the economy back on track.

China's Ministry of Finance and the National Development and Reform Commission didn't reply to faxed requests for comment.

Local governments are under fiscal pressures, so the bond proposal wasn't completely unexpected. Spending on Covid testing and controls is being increased because of a housing market slump and tax breaks for businesses.

It has been clear for some time that local governments need more money. Local governments are being allowed to borrow more by the central government. She said that means a fiscal cliff.

The data show economy is Shrinking in challenge to the target of the president.

Even if Beijing ramps up infrastructure spending, it is unlikely that it will be able to meet its GDP target. The chief China economist at NatWest Group said the extra spending could boost growth to 5% in the second half of the year, which is not enough to meet the full-year goal.

She said that it supports the sentiment that infrastructure will remain a key driver. It takes a few quarters for investments to be translated into actual construction and GDP. It is moderate and not strong enough to change GDP in a big way.

Growth will be 4.1% this year, according to economists.

On the London Metal Exchange, copper ended Thursday's trading 4% higher. Tin, zinc, and aluminum all increased in price.

China’s government in April promised an ‘all-out’ infrastructure push to boost the economy. It is delivering. 

Local governments are under orders to meet their full-year quota for special bond issuance by June and deploy the funds by August. That points to a bigger wave of infrastructure spending ahead. It also opens the door to another quota later in the year to finance even more, if needed. The Ministry of Finance appears to be going in that direction.

Chang Shu and David Qu

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The economy has started to recover from the worst infections of the lockdowns in April and May, but the outlook is uncertain as Covid continues to pop up and restrictions are tightened. The foundation of the economy is still not solid, according to the premier.

He spoke to the officials of five coastal regions and called for more supportive policies to help businesses recover. The regions should shoulder the responsibility of helping the economy grow and ensuring China's fiscal strength according to Li.

Local governments are given a quota for how many bonds they can sell. The money wouldn't be spent until much later in the year because provinces and cities wouldn't sell bonds until the quota was approved.

The central government began issuing the quota earlier so that local authorities could begin selling the debt after the new year began. In December of last year, the Ministry of Finance said it had already issued almost 1.5 trillion yuan worth of 2022's quota, and that it wanted to sell all 3.65 trillion yuan worth of bonds this year.

There is space in the second half of the year for the government to sell more debt.

The State Council was allowed to grant some of the bond quota early but didn't mention the timing of the sales. It is possible that the use of the quota this year will need to be approved by the standing committee.

According to people with knowledge of the matter, the NDRC is asking regional authorities to submit plans for projects as early as possible.

One of the people said that the process for local governments to make proposals for the next year usually starts in the last quarter of the year. One of the people said that some provinces were told to start new projects even if the construction was delayed.

With help from Alfred Cang and Xiao Zibang.