China plans more government bonds

16/12/2015 05:46 AST

China plans to issue significantly more government bonds next year, with key tenors in the one- to 10-year range, three sources with direct knowledge of the matter told Reuters on Tuesday.

One, three-, five, seven- and 10-year bonds could be issued as often as once a month, meaning that the total number those issues could increase by 10 or more in 2016.

This means that the total number of key tenor bond issues could increase to 60 or more in 2016, up from 49 in 2015. The Ministry of Finance may also increase the supply of 30-year government bonds in 2016, sources said.

“To achieve above 6.5 per cent growth next year, the Chinese economy still needs policy support,” said Ding Shuang, Head of Greater China Economic Research at Standard Chartered Bank in Hong Kong.

“The leadership is increasingly worried about high leverage and so that means they’re more willing to use fiscal policy to support the economy. We think the general budget deficit next year could reach 3.3 per cent of GDP. Part of that will be supported by new government bond issuance.”

China’s Ministry of Finance, when contacted by Reuters, had no immediate comment. China has been ramping up fiscal expenditures in recent months to help offset a dramatic slowdown in investment in 2015 linked to local government fiscal constraints and weak construction activity.

China’s fiscal expenditure surged 25.9 per cent in November from a year earlier, while fiscal revenue rose 11.4 per cent, Finance Ministry data showed on Monday. In October, expenditure was 36.1 per cent higher than the same month of 2014.

For the first 11 months, fiscal expenditure rose 18.9 per cent versus the same period last year while fiscal revenue increased 8.0 per cent, the data showed.

China’s central bank and commercial banks sold a net 221.3 billion yuan ($34.3 billion) worth of foreign exchange in November, data showed on Tuesday, reversing October’s net buying amid signs of intensifying capital outflows.

The market expects the central bank to tolerate further yuan weakness to support the slowing economy, ahead of an expected interest rate rise by the US Federal Reserve this week.

The yuan fell against the dollar on Tuesday after the central bank set the midpoint at its lowest level in more than four years for the second day.

Earlier central bank data showed that China’s foreign exchange reserves, the world’s largest, fell by $87.2 billion in November to $3.44 trillion, the lowest level since February 2013 and the third-largest monthly drop on record.

October’s net foreign exchange buying of 12.9 billion yuan indicated a brief respite in money outflows amid an official crackdown on illegal currency dealings and a rebound in the domestic stock market.

The Gulf Today