Trillion-Yuan Ultra-Long Government Bonds to Supplement Social Financing: How Will Monetary Policy Cooperate? (AI Translation)
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文｜财新周刊 王石玉 程思炜
By Caixin Weekly's Wang Shiyu and Cheng Siwei
随着监管当局治理资金空转、优化金融业增加值核算方法和引导信贷均衡投放，2024年4月的信贷与社融数据“挤水分”。
As regulatory authorities tackle fund idling, optimize value-added accounting methods in the financial industry, and guide balanced credit allocation, the credit and social financing data for April 2024 underwent a "clean-up."
5月11日，中国人民银行发布的数据显示，2024年前四个月人民币贷款增加10.19万亿元，比上年同期少1.98万亿元；前四个月社会融资规模增量累计为12.73万亿元，比上年同期少3.04万亿元。
On May 11, data released by the People's Bank of China indicated that in the first four months of 2024, RMB loans increased by 10.19 trillion yuan, which is 1.98 trillion yuan less compared to the same period last year. Over the same period, the cumulative increase in the total social financing scale amounted to 12.73 trillion yuan, 3.04 trillion yuan less than the previous year.
2024年以来，中国人民银行公布的金融数据均为增量累计数据，之后以表格形式披露社融单月增量数据。以单月计，4月人民币贷款增加7325亿元，同比多增136亿元；当月社会融资规模增量-720亿元，为历史次低。据央行调查统计司对社融单月增量统计表的注释，2024年4月对今年以来公司债数据按照最新行业分类结果进行了追溯调整，故不宜同比比较。
Since the beginning of 2024, the People's Bank of China has been releasing financial data in cumulative increments and subsequently disclosing single-month incremental data on social financing through tables. For the month of April, renminbi loans increased by 732.5 billion yuan, up 13.6 billion yuan year-on-year. The increment in social financing for the same month amounted to -72 billion yuan, the second lowest in history. According to the notes from the PBOC's Department of Statistics and Surveys regarding the April 2024 social financing single-month increment, the corporate bond data for 2024 has been retrospectively adjusted based on the latest industry classification results, making year-on-year comparisons unsuitable.
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- In April 2024, China's financial data showed a significant reduction in credit and social financing due to regulatory measures aimed at curbing inefficient capital use and optimizing financial value-added accounting methods. The People's Bank of China reported a decrease in new RMB loans and social financing compared to the previous year.
- The structure of new social financing revealed a notable decline in government bond net financing, recording negative growth for the first time in six years. This was attributed to slower issuance of government bonds and adjustments in corporate bond data classifications.
- To address these issues, the Ministry of Finance announced plans for accelerated issuance of long-term special government bonds starting May 17, 2024. These bonds are intended to support major national strategies and key security areas, with potential implications for market liquidity and coordination with monetary policy.
The People's Bank of China (PBOC) has revealed financial data for the first four months of 2024, showing a significant slowdown in loan growth and social financing, attributed to regulatory efforts aimed at reducing fund idling and optimizing value-added accounting methods [para. 1]. From January to April 2024, RMB loans grew by 10.19 trillion yuan, a 1.98 trillion yuan decrease compared to the previous year. Meanwhile, the social financing scale increased by 12.73 trillion yuan, down by 3.04 trillion yuan year-on-year [para. 2]. In April alone, RMB loans rose by 732.5 billion yuan, showing a slight year-on-year increase. However, social financing for the month saw a decrement of 72 billion yuan, marking the second-lowest in history [para. 3][para. 4].
A key factor behind these trends is the retrospective adjustment of corporate bond data, making year-on-year comparisons inappropriate [para. 5]. Government bond financing, often a significant source of aggregate financing, experienced a rare negative growth of 93.7 billion yuan in April, the first of such a decline in nearly six years [para. 6]. Analysts like Zhang Yu suggest that this structured approach to data is more meaningful, emphasizing the need to stabilize social financing growth through accelerated government bond issuance [para. 7].
Following the slowdown, the Ministry of Finance (MOF) announced accelerated issuance plans for both general and ultra-long-term special treasury bonds, starting in mid-May. These long-term bonds, with maturities spanning 20, 30, and 50 years, aim to bolster the financial market [para. 8][para. 9]. The initial issuance witnessed high demand with a total bidding amount well exceeding the offered 40 billion yuan, indicating strong market interest [para. 10]. Institutional investors are the primary targets, with opportunities for individual investors to buy through secondary markets after listing [para. 11].
Historically, similar declines in social financing have occurred only three times, prompting the government to utilize fiscal tools like ultra-long-term special treasury bonds to counteract such trends [para. 12]. The PBOC acknowledges that credit growth now faces demand constraints rather than supply issues, citing weak leveraging willingness among enterprises and residents. April saw a notable increase in loans to businesses, yet new household credit experienced a negative growth [para. 13][para. 14].
One challenge is the weak residential market demand despite eased real estate purchase restrictions in various regions. Low long-term expectations for employment and income stability dampen residents' willingness to take on debt, affecting the recovery of the housing market and retail credit expansion [para. 14][para. 15]. The corporate sector, previously a credit growth driver, also shows limited enthusiasm for production expansion due to mediocre profit margins and overcapacity concerns [para. 16].
Government bond financing struggles significantly impacted April's social financing data, showing a net negative figure for the first time since 2018. This may be partially due to delays in project reserves for local bonds and the slow issuance of ultra-long-term special bonds [para. 17]. Direct financing avenues like corporate and stock financing also faced reductions year-on-year [para. 18].
The PBOC's future strategies include increasing direct financing and leveraging tools like the Medium-term Lending Facility (MLF) and Open Market Operations. Discussions on utilizing tools like reserve requirement ratio cuts or even interest rate cuts are ongoing, with analysts suggesting a moderate approach to support the upcoming large-scale bond issuance [para. 19][para. 20]. Moreover, reintroducing cash bond trading in secondary markets could provide an effective liquidity management tool, ensuring smooth policy transmission and reduced market shocks [para. 21].
The MOF's clear objectives for ultra-long-term special treasury bonds focus on major national strategies, security capabilities, and infrastructure projects. These bonds are expected to fund significant areas like technological innovation, urban-rural integration, and regional development, reflecting a broad strategic vision to bolster China's economic resilience and capacity [para. 22].
Overall, China's financial market is undergoing a recalibration with concerted fiscal and monetary measures to stabilize growth, optimize financing structures, and support strategic national objectives [para. 21][para. 22][para. 23].
- Chuancai Securities
华创证券 - The article does not mention Chuancai Securities. It primarily focuses on China's financial data, adjustments by regulatory authorities, and the issuance of ultra-long-term special government bonds in 2024.
- Everbright Securities
光大证券 - The article mentions that Wang Yifeng, chief banking analyst at Everbright Securities, pointed out the current weak desire for residents to expand their balance sheets due to unstable expectations regarding employment and income. He noted that retail credit expansion primarily relies on increased business loans, despite recent housing policy relaxations.
- Hongta Securities
红塔证券 - Hongta Securities reported that traditional loan growth drivers, such as corporate sectors, saw a decline due to low profit margins and overcapacity. The slow issuance of government bonds also affected lending. The macro research report from Hongta suggests current enterprise expansion remains moderate.
- Standard Chartered Bank
渣打银行 - Standard Chartered Bank's Chief Economist, Ding Shuang, is mentioned in the article. He comments that open bidding for treasury bonds helps in price discovery compared to targeted issuance, and anticipates a more balanced liquidity demand despite upcoming bond issuances. Shuang also notes that a 25 basis-point reserve requirement ratio cut is more likely than increasing medium-term lending facility usage.
- Huatai Securities
华泰证券 - Huatai Securities Chief Fixed Income Analyst Zhang Jiqiang noted that banks often use "low-interest loans + manual subsidy interest" to boost deposit and loan volumes due to GDP pursuit by local governments and ranking pressures. He also highlighted that warming financing demand requires more signals and that long-term solutions might involve better debt financing for old and new economic sectors.
- Zheshang Securities
浙商证券 - Zheshang Securities' fixed income analyst Qin Han estimates that the average issuance size per term for the 1 trillion yuan ultra-long-term special government bonds will be 454 billion yuan, considering 22 issuances.
- CITIC Securities
中信证券 - CITIC Securities' Chief Economist, Ming Ming, believes that as local bond issuance accelerates from May, liquidity support may first be provided through reserve requirement ratio (RRR) cuts in the second and third quarters. If exchange rate pressures lessen, interest rate cuts might follow to maintain a low interest rate environment and facilitate low-cost government bond issuance.
- Nomura Securities
野村证券 - Nomura Securities' Chief Economist, Lu Ting, noted that China's interest rate cut space will expand following rate cuts in Europe and the U.S. However, he cautioned against overestimating the scope of these cuts, suggesting a reduction of around 30 basis points might be necessary and feasible, emphasizing the need to further reduce deposit rates.
- Changjiang Securities
长江证券 - Changjiang Securities' Chief Economist, Wu Ge, highlighted that the future direction includes the People's Bank of China (PBOC) conducting bond transactions in the secondary market. He suggested this might become more commonly used as an open market operation tool, especially with the introduction of ultra-long-term government bonds.
- Everbright Securities
光大证券 - Everbright Securities' Chief Banking Analyst Wang Yifeng noted that despite recently relaxed real estate policies, the impact on sales remains uncertain. Wang highlighted that residents' expectations regarding employment and income stability are weak, leading to low willingness to expand liabilities. Consequently, the recovery of demand for consumer and house purchasing is slow, with retail credit expansion mainly dependent on increases in business loans.
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