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China 2021 treasury bond issuance to be similar to this year’s

posted onDecember 27, 2020

China treasury bond issuance in 2021 will hold steady to this year's if no special-anti-virus bonds are sold, Reuters reported on Friday (Dec. 25), citing two sources, who attended a recent meeting held by China’s ministry of finance.

Beijing has issued roughly 7 trillion yuan ($1.07 trillion) worth of treasury bonds this year, including 1 trillion yuan of anti-virus bonds dedicated to fighting the effects of COVID-19.

A similar amount of bond issuance in 2021 would suggest a tighter fiscal policy, as about 3.4 trillion yuan worth of Chinese treasury bonds will mature next year, up from 2.96 trillion yuan this year.

The sources briefed on the government’s plans also said issuance of treasury bonds with key tenors would be somewhere between 50 billion and 75 billion yuan for each tranche next year.

China is the third-largest sovereign-debt market in the world, behind only the U.S. and Japan. Compared to developed-market sovereign debt, Chinese government bonds offer global investors higher yields and possible portfolio diversification, according to MSCI. Over the past eight years, local-currency Chinese government bonds have traded at significantly higher yields than those of U.S. Treasuries.

“Low yields in developed-market sovereign bonds are pushing investors to consider new sectors of the bond market. With its relatively high yields and potential for portfolio diversification, the local-currency Chinese government-bond market is generating increased interest from global investors. But investors might consider risks to the sector, including potential inflation and exchange-rate fluctuations ” MSCI Research analysts wrote.

After the Chinese gross domestic product shrank in the first quarter of 2020, China is the only major economy on track to post growth this year. Forecasts indicate a more than 2% rise in annual GDP.

China's leadership plans to target 8% growth for 2021, Nikkei Asian Review reported on Dec. 19, citing several government sources, as exports and private investment drive Beijing's bullish vision.

Fitch also expects China’s GDP growth to accelerate to 8% in 2021, up from the 7.7% rate forecast in September.

“This would be well above our estimate of China’s long-term growth potential of around 5.5%, but is quite achievable from such a low base in 2020,” Fitch analysts Brian Coulton and Pawel Borowski wrote in a report released on Dec. 10.

Nomura forecasts growth of 9% next year while Natixis predicts an expansion of 7.8%.
The World Bank updated its projections for China's GDP growth on Wednesday (Dec 23).

The financial institution expects China's GDP to grow by 7.9% per cent next year, compared with 2% this year, on the back of improved consumer and business confidence along with better labor market conditions.

It remains to be seen if investors' appetite for Chinese bonds will be modest or not.