Dec 24 2024: China is set to issue 3 trillion yuan ($411 billion) in special treasury bonds in 2025, marking a record-high issuance as Beijing ramps up fiscal stimulus to bolster its slowing economy, according to two sources familiar with the matter.
This move represents a significant increase from 2024’s 1 trillion yuan issuance and comes as China braces for potential economic challenges, including a hike in U.S. tariffs on Chinese imports expected under Donald Trump’s presidency beginning in January.
Stimulus-Driven Initiatives
The funds will be allocated toward boosting domestic consumption through subsidy programs, supporting business upgrades, and investing in advanced innovation-driven sectors, the sources revealed. Subsidy programs will include incentives for consumers to trade in old cars and appliances for discounted new ones, alongside initiatives to modernize large-scale industrial equipment.
A significant portion of the proceeds will also be directed to two major national programs focused on infrastructure projects such as railways, airports, and farmland construction, as well as enhancing security capacities in key areas.
Another 1 trillion yuan will be targeted at “new productive forces,” including advanced manufacturing sectors such as electric vehicles, semiconductors, robotics, and green energy. Additionally, funds will be used to recapitalize major state banks grappling with reduced margins and rising bad loans.
Economic and Policy Context
The planned issuance equals 2.4% of China’s 2023 GDP, emphasizing Beijing’s willingness to employ aggressive fiscal measures to counteract economic pressures. President Xi Jinping and top officials discussed these measures at the Central Economic Work Conference (CEWC) earlier this month, signaling a focus on maintaining steady economic growth and increasing government debt.
Although official targets for 2025, including a projected 4% budget deficit-to-GDP ratio and a 5% growth goal, will not be finalized until the annual parliament meeting in March, the CEWC highlighted the necessity of fiscal expansion and domestic economic reliance amid global trade uncertainties.
China’s economy continues to face significant challenges, including a property market crisis, high local government debt, and subdued consumer demand. These issues are further compounded by the potential impact of increased U.S. tariffs, which could exceed 60% if campaign pledges are realized.
Beijing aims to mitigate these risks by expanding its trade-in programs for consumer goods and industrial equipment, hoping to spur domestic consumption and strengthen economic resilience.
Market Impact
Following the announcement, yields on China’s 10-year and 30-year treasuries rose by 1 and 2 basis points, respectively. The issuance underscores China’s strategic push to navigate complex economic headwinds while fostering growth through targeted fiscal policies.
Exchange Rate
At the time of reporting, $1 was equivalent to 7.2939 Chinese yuan.
