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China to Issue Record Treasury Bonds in 2022, Guide Rates Lower

China will also encourage more long-term foreign investors into its treasury bond market, Wang Xiaolong, director of the Treasury Department in the Ministry of Finance, said

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Currency notes
China's foreign exchange reserves dropped $130 billion in the first four months, the official data showed. They had climbed $33.6 billion in 2021. File photo: AFP

 

China plans to sell a record amount of treasury bonds in 2022, while keeping overall interest rates of the issuance lower, as Beijing adopts a proactive policy to stabilise economic growth, a senior official at the Finance ministry said.

China will provide liquidity support for treasury bond issuance, and will also attract more long-term foreign investors into the world’s second-biggest bond market, Wang Xiaolong, director of the Treasury Department, Ministry of Finance, said during a meeting.

“Expansion and contraction of treasury bond issuance reflects the direction of macro policies,” Wang said in the speech, which was reported on Wednesday in China Bond, a magazine published by the China Central Depository & Clearing Co Ltd (CCDC).

China, which issued nearly 7 trillion yuan ($1.10 trillion) of treasury bonds in 2021, faces multiple challenges, including the pandemic, global inflationary pressure, and uncertainty stemming from the US Federal Reserve’s tapering, Wang said.

China’s treasury bond issuance will hit a record high next year, as quite a large volume of bonds will mature, and the government continues to pursue a proactive fiscal policy.

 

AF China Bond 50 Index
AF China Bond 50 Index. Graphic: Nitin Bhagat

 

The Ministry of Finance will coordinate with relevant government bodies to ensure there is ample market liquidity to guarantee smooth issuance, Wang said.

And as interest payment burdens from maturing bonds grow next year, China will moderately increase the proportion of short-term treasury bonds in its issuance in 2022 to guide the overall rates lower, he added.

In addition, China will reform the management of maturity dates for treasury bonds, so as to stabilise market expectations and help institutions better manage liquidity.

The government hopes treasury bond yields will play a bigger role as a benchmark for other types of borrowings.

Wang said China will encourage and guide more mid-to-long term foreign capital into China’s bond market and hold Chinese debt for longer.

Foreign holdings in Chinese treasury bonds have been increasing for 11 consecutive quarters and now stand at 2.4 trillion yuan, or 11% of the market, according to Wang.

 

  • Reuters with additional editing by Jim Pollard

This report was updated with further details on December 30, 2021.

 

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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years and has a family in Bangkok.

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