China to boost the strategic impact of government investment
On September 26, the Political Bureau of the Central Committee of the Communist Party of China held a meeting to assess the current economic situation and plan future economic initiatives. This gathering marked a change in China's macroeconomic policy and demonstrated the country's assurance in meeting its annual economic and social development objectives, uniting society to foster ongoing economic recovery and enhancement.
TroibNews 
**Editor's note**: Zhu Fangfei is the director and researcher at the Research Department of the Institute for Public Policy of Zhejiang University. This article reflects the author's opinions and not necessarily the views of CN. It has been translated from Chinese and edited for brevity and clarity.
On September 26, the Political Bureau of the Central Committee of the Communist Party of China held a meeting to assess the current economic situation and outline future economic initiatives. This gathering not only marked a shift in China's macroeconomic policy but also demonstrated the country’s confidence in meeting its annual economic and social development goals, uniting society in efforts toward sustained economic recovery and improvement.
The meeting underscored the need to strengthen countercyclical adjustments in fiscal and monetary policies, ensuring adequate fiscal expenditures to meet basic living needs, pay salaries, and support the effective functioning of local governments. It emphasized the importance of effectively utilizing ultra-long-term special treasury bonds and special local government bonds, leveraging government investments to stimulate development. Consequently, the current fiscal strategy centers on the full and appropriate use of these bonds to enhance government investment's catalytic role.
This approach is consistent with recent signals from the Ministry of Finance. On October 12, the ministry announced plans to intensify counter-cyclical fiscal policy adjustments aimed at boosting high-quality economic development. Minister of Finance Lan Fo'an stated that a package of targeted incremental fiscal measures would be introduced soon, including issuing special treasury bonds to assist large state-owned commercial banks in replenishing their core tier-1 capital and utilizing special-purpose bonds for stabilizing the property market.
A significant fiscal priority is the prompt issuance and effective use of one trillion yuan of ultra-long special treasury bonds and 3.9 trillion yuan of newly issued special bonds. The issuance of these bonds has recently accelerated; as of September 25, approximately 3.6 trillion yuan of the new special-purpose bonds had been issued, with 300 billion yuan yet to be issued. The balance of outstanding special bonds was around 28.2 trillion yuan, which is 1.3 trillion yuan below the ceiling of 29.5 trillion yuan. Regarding the one trillion yuan of ultra-long special treasury bonds, 752 billion yuan had been issued by September 25, leaving 248 billion yuan to issue. According to the ministry's plan, the issuance of the one trillion yuan in ultra-long bonds is expected to conclude by mid-November. Historically, new special bonds are typically issued before the end of October.
Proper utilization of special bonds is essential for expanding effective investment and optimizing government investment’s catalytic role. This year has seen robust efforts in issuing special bonds, with a record 3.9 trillion yuan planned for 2024. However, the issuance process has faced challenges.
Several factors contribute to the sluggish issuance. First, projects funded by special bonds must meet specific yield requirements, making it difficult to secure returns for various new infrastructure initiatives. Second, many projects require matching funds from local governments, which are often financially constrained. Third, the project management system is not entirely effective, with issues such as overlapping regulatory oversight and project delays during bottlenecks, causing allocated funds to remain within the financial sector rather than reaching the real economy.
In light of these challenges, the ministry proposed expanding the scope of special bond usage to enhance their practical implementation and conversion into physical investments. The ministry also suggested that special bonds could support land acquisitions and existing commercial housing for government-subsidized housing, as well as reasonably support infrastructure construction for strategic emerging industries, thus accelerating the development of new productive forces. These measures aim to optimize the scope and management of special bonds, stabilize the property market, and boost effective investment.
Issuing ultra-long special treasury bonds for major national strategic projects will inject additional capital into key economic sectors. This move is intended to spur effective investment, increase domestic demand, and stabilize economic operations. The ministry highlighted plans to issue special treasury bonds to support large state-owned commercial banks in replenishing their core tier-1 capital. This intervention will alleviate pressure from reduced net interest margins, creating more room for credit expansion and enhancing banks' lending capacities to the real economy. Currently, the operations of the six major state-owned commercial banks remain stable, but their long-term net interest margins have been declining, with loan growth outpacing capital replenishment. The shrinking interest margins and profitability challenges restrict banks' ability to issue credit derivatives, influencing macro liquidity throughout society. Raising funds via special treasury bond issuance will help improve credit availability and provide liquidity support for economic development, thereby maintaining economic stability within a reasonable range.
In terms of market expectations, subsequent fiscal policies may focus on several areas: first, expanding the use of special bonds and ultra-long special treasury bonds, enhancing fund efficiency and policy effectiveness; second, potentially raising the deficit-to-GDP ratio through the Standing Committee of the National People's Congress and issuing additional treasury bonds; third, further optimizing local debt resolution policies to assist local governments in managing hidden debt risks, thereby preventing liquidity challenges and ensuring basic living needs, salaries, and government functions; and fourth, increasing fiscal subsidies to enhance people's livelihoods.
Allen M Lee for TROIB News
On September 26, the Political Bureau of the Central Committee of the Communist Party of China held a meeting to assess the current economic situation and outline future economic initiatives. This gathering not only marked a shift in China's macroeconomic policy but also demonstrated the country’s confidence in meeting its annual economic and social development goals, uniting society in efforts toward sustained economic recovery and improvement.
The meeting underscored the need to strengthen countercyclical adjustments in fiscal and monetary policies, ensuring adequate fiscal expenditures to meet basic living needs, pay salaries, and support the effective functioning of local governments. It emphasized the importance of effectively utilizing ultra-long-term special treasury bonds and special local government bonds, leveraging government investments to stimulate development. Consequently, the current fiscal strategy centers on the full and appropriate use of these bonds to enhance government investment's catalytic role.
This approach is consistent with recent signals from the Ministry of Finance. On October 12, the ministry announced plans to intensify counter-cyclical fiscal policy adjustments aimed at boosting high-quality economic development. Minister of Finance Lan Fo'an stated that a package of targeted incremental fiscal measures would be introduced soon, including issuing special treasury bonds to assist large state-owned commercial banks in replenishing their core tier-1 capital and utilizing special-purpose bonds for stabilizing the property market.
A significant fiscal priority is the prompt issuance and effective use of one trillion yuan of ultra-long special treasury bonds and 3.9 trillion yuan of newly issued special bonds. The issuance of these bonds has recently accelerated; as of September 25, approximately 3.6 trillion yuan of the new special-purpose bonds had been issued, with 300 billion yuan yet to be issued. The balance of outstanding special bonds was around 28.2 trillion yuan, which is 1.3 trillion yuan below the ceiling of 29.5 trillion yuan. Regarding the one trillion yuan of ultra-long special treasury bonds, 752 billion yuan had been issued by September 25, leaving 248 billion yuan to issue. According to the ministry's plan, the issuance of the one trillion yuan in ultra-long bonds is expected to conclude by mid-November. Historically, new special bonds are typically issued before the end of October.
Proper utilization of special bonds is essential for expanding effective investment and optimizing government investment’s catalytic role. This year has seen robust efforts in issuing special bonds, with a record 3.9 trillion yuan planned for 2024. However, the issuance process has faced challenges.
Several factors contribute to the sluggish issuance. First, projects funded by special bonds must meet specific yield requirements, making it difficult to secure returns for various new infrastructure initiatives. Second, many projects require matching funds from local governments, which are often financially constrained. Third, the project management system is not entirely effective, with issues such as overlapping regulatory oversight and project delays during bottlenecks, causing allocated funds to remain within the financial sector rather than reaching the real economy.
In light of these challenges, the ministry proposed expanding the scope of special bond usage to enhance their practical implementation and conversion into physical investments. The ministry also suggested that special bonds could support land acquisitions and existing commercial housing for government-subsidized housing, as well as reasonably support infrastructure construction for strategic emerging industries, thus accelerating the development of new productive forces. These measures aim to optimize the scope and management of special bonds, stabilize the property market, and boost effective investment.
Issuing ultra-long special treasury bonds for major national strategic projects will inject additional capital into key economic sectors. This move is intended to spur effective investment, increase domestic demand, and stabilize economic operations. The ministry highlighted plans to issue special treasury bonds to support large state-owned commercial banks in replenishing their core tier-1 capital. This intervention will alleviate pressure from reduced net interest margins, creating more room for credit expansion and enhancing banks' lending capacities to the real economy. Currently, the operations of the six major state-owned commercial banks remain stable, but their long-term net interest margins have been declining, with loan growth outpacing capital replenishment. The shrinking interest margins and profitability challenges restrict banks' ability to issue credit derivatives, influencing macro liquidity throughout society. Raising funds via special treasury bond issuance will help improve credit availability and provide liquidity support for economic development, thereby maintaining economic stability within a reasonable range.
In terms of market expectations, subsequent fiscal policies may focus on several areas: first, expanding the use of special bonds and ultra-long special treasury bonds, enhancing fund efficiency and policy effectiveness; second, potentially raising the deficit-to-GDP ratio through the Standing Committee of the National People's Congress and issuing additional treasury bonds; third, further optimizing local debt resolution policies to assist local governments in managing hidden debt risks, thereby preventing liquidity challenges and ensuring basic living needs, salaries, and government functions; and fourth, increasing fiscal subsidies to enhance people's livelihoods.
Allen M Lee for TROIB News
