What's special about China's ultra-long special treasury bonds

BEIJING - With the issuance of the year's first batch of its 1-trillion-yuan ($141 billion) ultra-long special treasury bonds, China has moved to leverage the rarely-used fiscal policy to consolidate growth momentum from a long-term perspective.

As Premier Li Qiang noted, the move aims to support the implementation of major national strategies and build up security capacity in key areas.

Candidate projects supported by the bonds are yet to be confirmed, but the key areas have been announced.

Projects of quality

Zheng Shanjie, director of the National Development and Reform Commission, unveiled a list of the fields to be supported, which include science and technology innovation, integrated urban-rural development, coordinated regional development, food and energy security, and high-quality population growth.

According to experts, this represents a stark contrast compared to previous issuances.

China's first three issuances of special treasury bonds were all out of the need to deal with specific urgent risks and challenges, said Wen Bin, chief economist at China Minsheng Bank. For example, in 1998, it was to replenish bank capital in response to the 1997 Asian financial crisis and the deterioration of the asset quality of domestic commercial banks, while the goal in 2020 was to cope with the negative impact of the epidemic on the economy, according to Wen.

China issued new special treasury bonds in 1998, 2007 and 2020 separately. Of the total issuance, 39.8 percent, or 1.12 trillion yuan ($157.7 billion) are ultra-long, according to a research note co-authored by Wen with his colleagues Sun Ying and Han Sida.

The primary focus of the latest issuance, the fourth of its kind, is to advance Chinese modernization, promote high-quality development and seize the initiative in development, Li said during a video conference.

Local governments are actively aligning with policy support by fostering suitable projects. Following the video conference, Wang Hao, governor of East China's Zhejiang province, convened a work conference on the same day, urging the expedited establishment of a candidate project pool related to major national strategies and key areas highlighted by the premier.

Wang instructed the provincial government to meticulously plan to secure "big, sound and high-quality" projects in areas such as scientific and technological innovations, future-oriented industries, and urban-rural integration.

Significance and effects

Insiders believe that the issuance of ultra-long special treasury bonds is an important part of this year's proactive fiscal policies, which will help boost market confidence and expectations, and better support economic development.

Lian Ping, president of China Chief Economist Forum, said that ultra-long special treasury bonds can stimulate current investment and consumption, lay a solid foundation for long-term high-quality development, offer respite to local government finances, and bring multifaceted benefits.

"The ultra-long special treasury bonds will not be included in the budget deficit, and can be issued at an appropriate time based on market and economic conditions under the trend of moderately increasing leverage of the central government to ensure flexibility," said Bruce Pang, the Greater China chief economist of JLL, a real estate and investment management services firm.

"The ultra-long special treasury bonds are more flexible in project approval, issuance and use," said Zhang Jun, chief economist of China Galaxy Securities. "Compared with ordinary government bonds, such bonds can ease the pressure of short-to-medium-term debt repayment, and trade time for space to solve the imbalance between economic development and local debt."

Yao Yang, dean of the National School of Development, Peking University, noted that the issuance of the ultra-long special treasury bonds could help boost confidence in various aspects. "If the funds can be used to support local government operations, it will also help improve the business environment."

"From the perspective of investors, such an arrangement can stabilize market expectations, particularly regarding market interest rates, thus contributing to the stability of the financial market," said Wen Laicheng, a professor at the Central University of Finance and Economics, noting that despite the slight scarcity of 50-year bonds, the Ministry of Finance has announced specific issuance dates, with 20-year and 30-year treasury bonds available almost every month.

"Driven by these special treasury bonds, the scale of government borrowing has further expanded this year, requiring the central bank to create a good liquidity environment, so as not to harm the stable operation of the banking system and bring 'crowding-out effect' to private investment," said Ma Guangrong, vice dean of School of Finance at Renmin University of China.

Ultra-long special treasury bonds typically refer to those with a tenor of more than 10 years. This year, China plans to start the issuance of such bonds with terms of 20 years, 30 years and 50 years on May 24, May 17 and June 14, respectively. The issuance of the last batch of these bonds will be completed by mid-November.