Chinese Politburo Flags New Special Sovereign Bond Issuance after 13 Year Absence; Increase in Fiscal Deficit Ratio

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Special sovereign bonds in China are set to make a return to the market following a 13 year absence of new issues, as the Politburo touts new measures to help contain the economic impacts of the novel coronavirus.

A meeting of the Politburo convened by 27 March flagged the issuance of new special sovereign bonds as part of efforts to contain the impact of the COVID-19 outbreak.

The Politburo said that it would “research and propose a raft of active response macro-economic policy measures,” as well as “appropriately raise the fiscal deficit ratio, issue special sovereign bonds, and increase the local government special bond scope.”

Because China’s special sovereign bonds are not included in the deficit, they only require review and approval from the standing committee of the National People’s Congress, which could arrive as early as October.

China has issued special sovereign bonds on three occasions in the past:

  • August 1998: Issuance of 270 billion yuan in bonds to raise funds for supplementing the capital of China’s big four state-owned banks.
  • August – December 2007: Issuance of 1.55 trillion yuan (approx. USD$200 billion) in bonds to be used to purchase foreign exchange for investment in the China Investment Corporation.
  • 2017: Issue of special sovereign bonds to roll-over maturing bonds from 2017.

Sun Binbin (孙彬彬), chief fixed-income analyst with Tianfeng Securities, expects the upcoming issue to be 500 billion yuan, to be used for similar ends as the 1998 issue.

According Sun the funds raised will be used primarily for supplementing the capital of certain banks (small and medium-sized lenders in particular), or to provide special support to parts of Hubei heavily affected by the COVID-19 outbreak.

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