Infrastructure spending is set to be ramped up in China, much to the joy of the world’s dry bulk shipping community.
China’s central government will issue a series of treasury bonds totalling RMB4.75trn ($667bn) this year, the vast majority of which are deemed infrastructure bonds, to fund regional development and support the economy hit by the outbreak of coronavirus, Chinese premier Li Keqiang revealed at the opening session of the National People’s Congress (NPC) today.
Today’s $667bn stimulus announcement – while not being as large as the $1trn some analysts had predicted – is still larger than the $564bn package Beijing unleashed in December 2008 in the wake of the collapse of Lehman Brothers, a stimulus that resuscitated dry bulk fortunes 11 years ago.
The government has announced plans for regional governments to issue RMB3.75trn ($527bn) worth of bonds to fund the regional development including infrastructure projects, and it will also issue another RMB1trn ($140bn) in special treasury bonds to support businesses hit by the Covid-19 pandemic.
China has for the first time dropped its target for annual GDP growth targets, citing continued uncertainties brought by the Covid-19 pandemic.
The government predicted today the treasury deficit will grow by RMB1trn year-on-year and has asked all regional governments to cut non-essential expenditure by over 50%.
The government said it would focus its efforts on the guarantee of basic livelihood this year as pressure on employment and financial risks are rising significantly, and it has also vowed to further facilitate foreign investment and international trade through various measures including opening up more business areas for foreign investment and accelerate the development of free trade zones.
“Issuing special treasury bonds will enable the central government to increase the transfer payments to local governments, helping the enterprises and areas hard hit by the virus outbreak pull through and reviving the local economy,” business consultancy CRU said in a report.
According to CRU, the special treasury bonds are issued for specific policies and projects and occur off balance sheet. They have only been issued twice before – in 1998 to recapitalise banks as the financial crisis pummelled Asia; and in 2007 to set up sovereign wealth fund China Investment Corp and strengthen China’s foreign-exchange reserve management.
Premier Li also said today Beijing remains committed to implementing the terms of the phase one trade deal signed between the two countries last year.
“With more infrastructure projects, I think it will eventually drive up commodity and shipping demand, however, we still need to see how will the local governments allocate these funds as so far there aren’t any clear guidance issued by the central government on the matter yet,” said Lin Ziyu, an analyst from Citic Securities.