China Turns to Ultralong Bonds to Boost Economy Amid Slowing Credit Growth
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China will begin selling a series of long-term special treasury bonds this week, signaling Beijing's commitment to supporting its slowing economy, as reported by Nikkei Asia. The issuance, totaling 1 trillion yuan ($138 billion), will include 20-, 30-, and 50-year bonds, with the first batch of 30-year bonds going on sale this Friday.
This move comes as concerns mount over China's economic growth trajectory, with a prolonged property slump and weak consumer demand weighing on activity. Data released over the weekend showed that broad credit growth slowed to a record low of 8.3% in April, highlighting the challenges faced by policymakers in sustaining the desired growth rate.
Premier Li Qiang first announced the plan to issue these ultralong bonds in his March government work report, where he emphasized their role in "the implementation of major national strategies and the construction of security capabilities in key areas."
The urgency of this measure was reiterated at a recent Politburo meeting, where the Communist Party's top decision-making body stressed the need to "issue and make good use of ultralong-term special treasury bonds as soon as possible."
"The slowdown in credit growth underscores the medium-term challenge that policymakers face in sustaining current GDP growth rates amid a diminishing appetite among firms and households to invest or buy property," Julian Evans-Pritchard, head of China economics at Capital Economics, told Nikkei Asia.
Despite the potential benefits of the bond issuance, foreign investors have shown a cautious stance, with two consecutive months of net selling of Chinese government bonds recorded in February and March. However, some asset managers remain optimistic about the potential of Chinese policy bank bonds, citing their low credit risk and diversification benefits.
"With China's economy currently in a different cycle than other markets, high-rated Chinese government and policy bank bonds can offer risk diversification benefits," notes Swa Wu, investment director for fixed income at Schroders, in a note to Nikkei Asia.