China to issue some policy bank bonds ahead of special treasuries, sources say

SHANGHAI/BEIJING (Reuters) – China plans to issue some policy bank bonds earlier in the second quarter ahead of planned sales of special treasury bonds, two sources said on Thursday.

Chinese Premier Li Qiang said during the parliamentary meeting in early March that the government plans to issue 1 trillion yuan ($139 billion) in special ultra-long-term treasury bonds, which are not included in the budget.

“Issuance volume of policy bank bonds will be increased in the second quarter to make way for treasury bond sales,” said a source with direct knowledge of the plan.

China also adjusted issuance plans for various types of bonds during the COVID pandemic, the source noted.

China’s three policy banks didn’t return Reuters’ requests for comment.

China aims for economic growth of about 5% this year as the country grapples with weak consumption, a deepening property crisis and local government debt risks.

The South China Morning Post said in a report on Thursday that Chinese President Xi Jinping had told China’s central bank to restart treasury bond trade, citing a speech Xi made last year.

The article, widely distributed in China’s social media on Thursday, stirred speculation that the People’s Bank of China could directly buy special treasury bonds.

Morgan Stanley’s chief China economist Robin Xing said Bejing’s intention is to improve the open market operational mechanism by “increasingly using government bond trading to control financial conditions, a standard approach among global central banks.”

“It is not buying government bonds in the primary market, therefore not an indication of QE/monetization of public debt (MMT)”, Xing said in a note.

(Reporting by Shanghai and Beijing newsroom; Editing by Christian Schmollinger and Shri Navaratnam)

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