Ultra-long-term government bonds expected to enhance economic vitality

At a recent news conference of the State Council Information office, a senior official from the Ministry of Finance said that China will start to issue ultra-long-term national bonds on May 17. A high-level meeting held by the authorities a few days later also pointed out that China should issue and make good use of ultra-long-term special government bonds to maintain the intensity of government spending.

This means the issuance of ultra-long-term government bonds in China may have entered its final stage. Compared with ordinary government bonds, ultra-long-term government bonds can relieve the debt repayment pressure of short- and medium-term bonds to a certain extent. China issued special national bonds respectively in 1998, 2007 and 2020 and these had a positive impact on its economic development and social stability. For example, against the backdrop of the COVID-19 pandemic, China issued special government bonds in 2020, 12.3 billion yuan ($1.7 billion) of which was earmarked for Gansu province and played an important role in the prevention and control of the pandemic and the upgrading of grassroots medical facilities.

Despite facing a series of external and internal uncertainties, China has achieved a tangible post-pandemic recovery in the past years, but this recovery still faces multiple pressures, including insufficient effective demand, overcapacity, weak social expectations, and hidden risks. To tackle these challenges, the authorities have repeatedly emphasized the use of counter-cyclical and cross-cyclical macro policy regulation. The around 5 percent economic growth set by China for 2024 also requires active fiscal support and the expansion of government debts to maintain the target.

By the end of 2023, the leverage ratio of the government sector was nearly 60 percent, and the ratio of central government debt was only 42.5 percent. Even if the leverage ratio of China's broad government sector, after taking into account local hidden debt, were close to 100 percent, it would still be far lower than that of overseas economies. It means China has room to increase its leverage ratio, and issuing special treasury bonds can help optimize its debt structure and reduce its macro debt cost.

This year's government work report makes it clear that in order to systematically solve the funding problem for the construction of some major projects, China plans to issue ultra-long-term special government bonds for several consecutive years. This is an inevitable requirement to respond to profound changes in the international environment and a realistic need to balance development and security and promote high-quality development.

The issuance of ultra-long-term special government bonds will help the country stabilize growth, expand domestic demand and promote employment, while facilitating the development of new quality productive forces and promoting high-quality development. It is also expected to leverage private capital and promote the development of the private economy, thus enhancing China's economic vitality.