"China to Issue Record 599 Trillion Won Special Bonds Next Year"

To be Used for Domestic Demand Stimulation, Corporate Facility Expansion, and Advanced Industry Support

Tripled from 200 Trillion Won This Year to Achieve Growth by 2025

The Chinese government plans to issue special bonds worth a record 3 trillion yuan (599 trillion won) next year to revive the stagnant economy. This is a significant increase compared to this year's bond issuance of 1 trillion yuan.

According to Reuters on the 24th (local time), the Chinese government decided to issue bonds of this scale to mitigate the impact of tariff increases on Chinese imports ahead of Trump's return.

The proceeds from the special bonds are expected to be used for stimulating consumption through subsidies, upgrading corporate facilities, and supporting advanced sectors leading innovation.

Following this news, the yields on China's 10-year and 30-year bonds rose by 1 basis point (bp) and 2 bp, respectively.

The increase in China's bond issuance appears to be aimed at stimulating consumption to counter deflationary pressures, even if it means increasing the fiscal deficit.

Sources said that about 1.3 trillion yuan to be raised through long-term special bonds will mainly support consumption stimulation. This includes programs that provide subsidies when consumers sell old cars or home appliances and purchase new ones, and programs that support companies in upgrading facilities on a large scale.

National strategies such as railway, airport, and farm construction, as well as major regional security capacity building projects, are also set as major programs to be supported through these bonds.

Another large portion of the planned bond proceeds for next year is expected to be used for investment in advanced manufacturing, which the Chinese government calls 'new productivity.' 'New productivity' refers to fields such as electric vehicles, robots, semiconductors, and green energy. Over 1 trillion yuan will be supported for this project.

The remaining bond proceeds will be used for the recapitalization of large national banks. Several banks in China are struggling with declining margins, reduced profits, and increasing non-performing loans.

The 3 trillion yuan treasury bonds account for 2.4% of China's GDP in 2023. In 2007, the Chinese government also raised a total of 1.55 trillion yuan through bond issuance, which was equivalent to 5.7% of China's GDP at the time.

Chinese President Xi Jinping and senior officials discussed the economic direction for 2025 at the Central Economic Work Conference (CEWC) held on the 11th and 12th. It was reported that they plan to increase the budget deficit to 4% of GDP, the highest level ever, to maintain the economic growth target of 5% next year.

Typically, the CEWC sets goals for China's economic growth targets, budget deficits, and debt issuance. These goals are not officially announced until the annual parliamentary meeting in March.

Kim Jeong-ah, Guest Reporter kja@hankyung.com