“China’s government bond market is the third largest in the world, and liquidity has improved significantly, creating opportunities for the People’s Bank to trade government bonds in the secondary market,” a PBOC official said. Stated.
Despite the bank’s characteristically cautious wording, analysts said this could signal a significant change in approach.
“If the central bank increases its purchases of government bonds in the future to carry out capital injections, this could be a major policy shift rather than a complement to normal monetary policy,” Huajin Securities said in a note on Wednesday. said.
President Xi Jinping lays out plan to make China a ‘financial superpower’, warns of risks
President Xi Jinping lays out plan to make China a ‘financial superpower’, warns of risks
The People’s Bank of China’s comments followed an article published in party mouthpiece People’s Daily earlier in the day. In the latter part, the Treasury said it supported a “gradual increase” in the buying and selling of government bonds.
The central bank also said, citing unnamed experts, that the Treasury’s bond issuance should be “of sufficient scale” and at a “stable pace” to be effective and avoid unexpected changes in interest rates. .
However, the PBOC’s objectives in trading government bonds are different from those of central banks in developed countries, the anonymous PBOC official added.
“Central banks in some developed countries have been forced to purchase large-scale government bonds to achieve their monetary policy goals when they have exhausted traditional monetary policy tools,” the official said.
Analysts at Everbright Securities pointed out the contrast with the quantitative easing policy, and unlike other central banks that only buy, the possibility of trading in government bonds includes both buying and selling, according to People’s Bank of China authorities. agreed with the person.
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China’s GDP: Beijing’s long to-do list for economic growth in 2024
China’s GDP: Beijing’s long to-do list for economic growth in 2024
Analysts at Tianho Securities said in a note on Wednesday that long-term government bond trading could be seen as an easing measure similar to lower reserve requirements, which banks are required to keep as reserves of their cash holdings. He said that there is. . Lowering this minimum is one way to increase liquidity in the economy without relying on direct trade.
Although the PBOC is prohibited by law from purchasing Chinese government bonds in the primary market, there is no such prohibition on buying or selling these bonds in the secondary market.
China’s economy exceeded expectations in 2024, growing 5.3% year-on-year in the first quarter, laying the foundations for achieving the Chinese government’s annual target of around 5%.
China ramps up sales of U.S. Treasury bills as Fed signals low interest in rate cuts
China ramps up sales of U.S. Treasury bills as Fed signals low interest in rate cuts
Zhang Monan, deputy director of the Institute of American and European Studies at the China Center for International Economic Exchange, is one of the advisers proposing a less traditional way to deal with the situation.
He said China could adopt certain practices that the United States has used throughout its history to weather economic crises and, more recently, the coronavirus pandemic.
“Dirty talk” about debt can take on a new and different perspective
“In the context of a new policy cycle and economic cycle, we can free our minds and break through stereotypes, especially because we are entering a different stage of development,” Zhang said at a forum in Beijing. , because it can change the way people think about some traditional issues.” Arranged by think tank Huaxia New Supply Economics Research Institute on Sunday.
“The so-called dirty talk about debt can now have a new and different perspective.”
The Chinese government has been reluctant to expand fiscal policy, preferring one-off measures such as issuing special treasury bills. The country delegates much of its borrowing to local governments, much of which is off-budget, meaning it will not affect this year’s budget deficit ratio, currently set at 3% of gross domestic product. do.
China cuts banks’ reserve requirements ahead of August statistics release
China cuts banks’ reserve requirements ahead of August statistics release
In China’s 2024 budget proposal, national debt increased by only 180 billion yuan (US$24.8 billion) from the previous year. The central government announced this year that it will sell an additional 1 trillion yuan in super-long-term special government bonds, another extra-budget move.
Chinese government bonds account for less than 5% of the People’s Bank of China’s assets, compared with the European Central Bank, which holds about 65% of government bonds issued by euro zone countries, according to the Beijing-based think tank National Institute of Financial Research. . and development (NIFD).
“We continue to recommend that the size of the central government’s fiscal deficit and national treasury debt should increase moderately for an extended period of time,” the NIFD said in its report on Sunday.
After the Federal Reserve pledged to expand its purchases of U.S. Treasuries and mortgage-backed securities “unlimited” in 2020, and Congress authorized the largest influx of federal funds in history in the same year, It contracted by 31.4% in the quarter. . However, it has since rebounded.
“this [coordination] “The three years since the pandemic have been a relatively mature experience for many countries,” said Zhang, who worked at China’s top economic planner, the National Development and Reform Commission. “[It avoids] The private and housing sectors will continue to deleverage, and central banks and the government sector will leverage more. It’s worth discussing. ”
