Exclusive: China to Issue $284 Billion in Sovereign Debt This Year to Revive Economy, Sources Say By Reuters

China is set to issue special sovereign bonds totaling approximately 2 trillion yuan (around $284.43 billion) this year as part of a new fiscal stimulus initiative, according to two sources familiar with the situation. This move is intended to combat rising deflationary pressures and support sluggish economic growth.

The Ministry of Finance plans to issue 1 trillion yuan in special sovereign debt to encourage consumer spending, driven by concerns about a slow post-COVID recovery, the sources mentioned. Proceeds from these bonds, which are issued for specific purposes, will be allocated to boost subsidies for the trade-in and modernization of consumer goods as well as the upgrading of large-scale business equipment.

Additionally, the funds will be used to provide a monthly allowance of about 800 yuan (approximately $114) per child for families with two or more children, excluding the first child, according to one of the sources.

Moreover, China intends to generate another 1 trillion yuan through a separate issuance of special sovereign debt to assist local governments in addressing their debt challenges.

Although much of China’s fiscal stimulus traditionally focuses on investment, diminishing returns and the burden of substantial local government debt—amounting to $13 trillion—have become significant concerns. Currently, household spending accounts for less than 40% of GDP, significantly below the global average by about 20 percentage points.

Some fiscal support measures could be announced as early as this week, noted the sources, who spoke on condition of anonymity due to the sensitivity of the information.

In a related development, Chinese leaders emphasized their commitment to achieving the economic growth target of approximately 5% for 2024 and stabilizing the housing market during a recent Politburo meeting. The council discussed utilizing ultra-long special sovereign bonds and local government special bonds to ensure necessary government investment and fiscal spending.

This planned fiscal expansion represents policymakers’ latest efforts to rejuvenate an economy facing deflationary challenges and potential growth target shortfalls due to declining property values and weak consumer confidence.

These strategies follow the central bank’s recent announcement to implement unexpected monetary stimulus and property market support measures aimed at restoring economic confidence through liquidity provisions and reduced borrowing costs. While these measures have bolstered market sentiment, there is an expectation for a corresponding fiscal package to complement the monetary initiatives.

Guided by top leaders, the Ministry of Finance and various government entities have been actively developing fiscal stimulus strategies to stimulate the economy, said the two sources.

In addition to the special sovereign debt designed to encourage consumption, Chinese authorities also plan to gradually enhance financial assistance for small and medium-sized enterprises through employment subsidies and tax relief to lower their operational expenses, according to the second source.

Economists at Morgan Stanley stated that they anticipate further fiscal support for housing and social welfare initiatives in the coming months, emphasizing Beijing’s serious approach toward deflation and its exploration of multiple options. Reports also indicate that China is considering injecting up to 1 trillion yuan of capital into its major state banks to boost their ability to aid the struggling economy, primarily through the issuance of new special sovereign bonds.