China seeks to restart its economy with $220 billion in bond sales

As we predicted more than a year ago, China, which remains painfully limited in how it can revive its slowing economy, is bracing for massive fiscal stimulus in the form of a tidal wave of local government bond sales. With the faltering growth of the world’s second largest economy, especially after Chinese President Xi Jinping. cleared up weeks ago “covid zero” not going anywhere, there is also “zero probability” that Beijing’s growth target for 2022 of 5.5% will be achieved due to the persistent threat of new lockdowns.

China’s slowdown recently forced the People’s Bank of China to cut key interest rates for long-term loans to cushion falling property and closures. Meanwhile, as doubts grow that China will bounce back as in previous economic downturns, policymakers are ready for the second round of stimulation: an infrastructure splurge.

Bloomberg reports that China’s Ministry of Finance is considering allowing local governments to sell a whopping 1.5 trillion yuan ($220 billion) of “special” local bonds in the second half of the year. People said the bonds would boost the struggling economy.

“The bond sale would be ahead of next year’s quota,” according to people who asked not to be identified because it has yet to be officially announced.

While local bond issuance – one of the few places in China’s economy where there is excess borrowing capacity – is nothing new, this would be the first time that “issuance has been accelerated in this way, underscoring growing concerns in Beijing about the dire state of the world’s second-largest economy.” …previously, local governments didn’t start selling debt until January 1, when the new budget year begins.”

China is desperate to offset downward pressure on the economy by restoring its old playbook of increasing infrastructure spending to cushion the economy in times of economic hardship. If the country’s legislature approves the proposal, it would add to the 1.1 trillion yuan ($164 billion) in new infrastructure support unveiled last month.

Economists surveyed by Bloomberg forecast the economy will grow around 4.1% this year, missing Beijing’s growth target of 5.5%. It seems that boosting growth is a government measure to offset the economic downturn.

Related: The One Commodity That Won’t Stop Growing

While it’s normal practice for local governments to make proposals for the coming year, that process normally begins in the last quarter of each year, one of the people said. Some provinces have been told to start new projects when feasible, even if construction was originally scheduled to begin next year, one of the people said. -Bloomberg

Chinese stocks closed in the green on Thursday. The benchmark CSI 300 index closed up about half a percent and is up almost 19% since hitting a low in late April.

After tumbling in recent days, commodities have seen solid supply on expectations that China will once again emerge as a major buying force as it prepares to build a new batch of ghost towns.

By Zerohedge.com

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