The Chinese regime will issue a batch of special sovereign bonds next week, a financing tool that China rarely uses, to help the economy get out of the predicament.
As the Voice of America reported, China’s Ministry of Finance announced on Friday, December 9, that it plans to raise 750 billion yuan ($107.79 billion) from a special bond issuance.
The proceeds from the sovereign bonds will be used to support the development of the economy and social undertakings.
So what are special sovereign bonds?
In an explanation from Bloomberg, the special bonds are used to raise money for a certain policy or to help solve a particular problem.
Unlike regular Treasury bonds, special bonds are not part of China’s official budget and thus not included in the country’s deficit calculations.
The regime is cash-strapped with the COVID-19 lockdowns, a real estate crisis, and tax breaks. One option the regime can use to raise cash is to sell special sovereign bonds, a financing tool it last dusted off in 2020.
China once issued sovereign bonds in 2007, which expire on December 11.
In its statement, the Ministry of Finance said that the new sovereign bonds will be issued on December 12. The notes, with maturity of three years and fixed interest rates, will be listed on the stock exchange.
The ministry will sell the notes to designated domestic banks in the interbank bond market, and the central bank will carry out open market operations with relevant banks.
According to Bloomberg, that implies the central bank will likely provide liquidity support for the banks to buy the special bonds.
China’s economy is currently in its worst state since the 1970s.
The majority of experts believe that additional fiscal support may be necessary, because local governments face exhausting finances due to their budget deficits and debt limit.
A lot of online comments said that depleting finances from local governments was a key factor forcing the regime to loosen its “zero-COVID” policy.