China local debt may hit 3.8tn yuan

Agencies and staff reporter

China is considering a record high 3.8 trillion yuan (HK$4.4 trillion) local debt quota this year and 18 local governments are expected to issue over 1 trillion yuan bonds in the first quarter of this year, with nearly 90 percent for special projects.

The special local government bond quota is higher than the previous record of 3.75 trillion yuan. Chinese officials are widening the budget deficit target as they ramp up support for the world's second-largest economy, according to people familiar with the matter.

Officials are also mulling a deficit target of around 3 percent of the gross domestic product for 2023, the people said. That would be higher than last year's goal of 2.8 percent, yet smaller than 3.6 percent in 2020.

Beijing has pledged more fiscal and monetary support this year for an economy emerging from three years of Covid restrictions and a property market crisis. Special bonds are a key source of funding for infrastructure, which economists expect will help fuel economic growth of close to 5 percent or higher this year.

Local governments have already built a massive special bond stockpile on infrastructure investments, with a US$2 trillion (HK$15.6 trillion) maturity wall looming in coming years.

Besides, Chinese banks extended 1.4 trillion yuan in new yuan loans last month, up from November and beating analysts' expectations, according to data released by the People's Bank of China. The whole year reached 21.31 trillion yuan.

The central bank has promised to make its policy "precise and forceful" this year to support the economy, keeping liquidity reasonably ample and lowering funding costs for businesses. It also called on major Chinese banks to finance mainland developers.

Meanwhile, China issued a second batch of 2023 crude oil import quotas, raising the total for this year by 20 percent compared to the same time last year to support growth.

UBS expects China's growth will be 4.9 percent this year, thanks to a consumption rebound as people's accumulated savings during the lockdown will be released, while DBS believes it will be 4 percent as growth will likely remain subdued in the first half.