MNI: China To Issue More Bonds As Stimulus Targets Consumption
MNI (BEIJING) - China will increase government debt issuance by 20-50% in 2025 in order to keep GDP growth at around 5% at a time when officials are shifting their emphasis to prioritising consumption rather than investment and as trade relations with the U.S. look likely to deteriorate, policy advisors and economists told MNI.
Budgeted new government bonds issuance could total CNY15 trillion, equivalent to around 12% of GDP, jumping from CNY9.8 trillion in 2024, said Zhao Xijun, co-dean of the China Capital Market Research Institute at Renmin University of China, who thinks authorities are likely to set a fiscal deficit target in a range of 3.6-4% of GDP next March, up from 3% this year. (See MNI INTERVIEW2: China Fiscal Stimulus Seen Near 10% GDP)
Xu Hongcai, deputy director at the China Association of Policy Science’s Economic Policy Commission, expected total bond issuance of CNY12-13 trillion, with a deficit ratio of around 4%.
They spoke to MNI after the country’s Central Economic Work Conference made an unusually specific call on Thursday to “increase the deficit-to-GDP ratio” and to boost issuance of special treasury bonds and local government special bonds.
The CEWC’s assessment of the economic outlook for next year was cautious and pragmatic, highlighting increasing external pressures as well as internal challenges such as weakness in household income and employment, Zhao said.
The conference saw a major shift towards fiscal stimulus and the first change in the People’s Bank of China’s policy stance for 14 years.
Authorities hope that by boosting fiscal spending funds, companies will be more willing to invest, driving both investment and consumption, Zhao said.
CONSUMPTION KEY
In another major shift, the CEWC placed more emphasis on consumption than on investment, while “expanding domestic demand” has replaced 2023’s “technological innovation and industrial upgrade” as the top task for next year.
Consumption has been highlighted as the key to expanding domestic demand, said Zong Liang, chief research at Research Institute of Bank of China, pointing to significant potential for growth in services and high-end goods, areas which he said could also attract foreign investment.
Retail sales grew by only 3.2% y/y in the first ten months of 2024, compared to 7.2% growth in all of 2023.
Authorities are also likely to target rural areas for boosting consumption, said Xu, pointing to the CEWC’s call for “special action”. The Ministry of Commerce has already worked on facilitating e-commerce services and logistics systems in rural areas, he noted.
Other pledges point to an increase in the CNY300 billion funding for schemes to encourage consumers to trade in old white goods and cars for new models, as well as for factories to upgrade manufacturing equipment. (See MNI EM: Special Treasuries To Boost China's Consumers In 2025)
But, while consumption stimulus will tend to increase incomes in the short term, the CEWC sent no clear signals regarding longer-lasting measures to reform the distribution of incomes or social security, said Xu.
“Deeper reforms to address the huge operating cost of bureaucracy will be the key,” he said, calling for greater subsidies for lower income groups, which he said would be more efficiently provided by increasing central-government transfer payments to local governments rather than by using special treasuries. Pensions for rural people should also be increased, and improvements made to other areas of public welfare.