Kevin Yao

BEIJING, (Reuters) – Chinese provinces race to issue $225 billion in bonds in June. This frontloading investment is meant to revitalize the COVID-battered economic system even as policy advisors push for more debt issuance in second half.

China’s Cabinet unveiled last week a series of policies to boost an economy that was hit hard by COVID-19 curbs. Analysts believe however, more stimuli will be required to sustain the recovery.

In an effort to encourage investment, the cabinet directed local governments Tuesday to make sure that 2022’s 345 trillion yuan ($518billion) special bond issuance for infrastructure was completed before June 30th.

According to figures by the finance ministry, 1.85 trillionyuan (or 54%) was issued in May 27, this means that provinces need to raise nearly 1.5 trillion Yuan. Funds raised will need to be spent by August.

Analysts at Guosheng Securities stated that the move would increase market liquidity and force the central bank into pumping out cash via its medium-term loan facility or a reduction in reserve requirements.

Analysts believe that the funds could be used for infrastructure expansion to 5G, AI, and data. Returns on older projects such as highways and railways are much lower than they were in previous years.

China’s Cabinet said Tuesday that it had approved new kinds of energy and infrastructure projects.

Beijing’s infrastructure spending is increasing in a predictable pattern. However, past attempts have resulted in a few white elephant projects.

Premier Li Keqiang, who is urging China to help its economy that has been hampered by Beijing’s zero-COVID policies, last week reiterated his need for frontloading policy support. She said China would be achieving positive year-on-year growth in the second half of the year.

Private-sector economists predict that the second largest economy in the world will contract during the April-June quarter. This would mark the first contraction since the deep recession in the first quarter 2020.

REQUIRED: MORE STIMULUS

Analysts think that China will need more stimuli as it eases its lockdown policies in China. There is also the possibility of fresh outbreaks and a need for further measures to curb the situation.

Shanghai lifted movement restrictions on its 25 million inhabitants starting Wednesday

Policy advisers and thanks tanks continue to push for special bonds from the central government in order to support infrastructure spending and help with COVID-affected sectors.

Jia Kang of China Academy of New Supply-side Economics stated that it was important to prepare and for the same size as in 2020.

Jia Jia, who was once the head of the think tank responsible for the finance ministry, said, “We have severe difficulties in reaching the annual growth goal, but we should at least strive for it.”

China is targeting a 5.5% annual growth rate, however many economists think that this goal may be increasingly impossible to achieve.

China Wealth Management 50 Forum (a think tank) has recommended that special Treasury bonds be issued in excess of 2 trillion Yuan. This is based on the requirement to increase economic growth to 6.5% by the end of the second half, in order to reach full-year growth close to 5%.

In a politically sensitive year when President Xi Jinping will be seeking a third term, the urgency of getting the economy on its feet is even more pressing.

Guosheng Securities estimates that there will be 1-1.5 trillion of these bonds issued by the end of September.

Zhang Ming is a senior economist with the Chinese Academy of Social Sciences. This think-tank has recommended that the government raise its target for deficit to 3.0-3.2% of GDP.

According to policy insiders, any moves to increase the deficit budget or to issue special Treasury bonds will require approval from parliament. Policymakers must also assess the effects of the stimulus to determine if they should take further action.

According to a policy insider, “The potential for infrastructure investments is small.”

China has issued special Treasury bonds worth 1 trillion Yuan to support the recovery of an economy first affected by COVID-19.

($1 = 6.6631 renminbi)