Policy Suggestions on How to Issue Ultra-Long-Term Special Treasury Bonds and How to Use Them

By Zhou Hao, Chair Professor of PBC School of Finance, Tsinghua University and Chair Professor of Business School of Southern University of Science and Technology, and Sha Nan, Deputy Director of the Research Center for New Structural Finance, National Institute of Financial Research, Tsinghua University, and Visiting Scholar of Southern University of Science and Technology

Starting from 2024, the mainland will issue ultra-long-term special treasury bonds for several consecutive years, which will help stimulate domestic demand, promote industrial upgrading and optimize the government debt structure. This article examines the necessity of issuing ultra-long-term special government bonds for several years in a row, how special government bonds should be issued, and how special government bonds should be used.

The 2024 government work report proposes that starting from 2024, the mainland will issue ultra-long-term special treasury bonds for several consecutive years, which will be used exclusively for the implementation of major national strategies and security capacity building in key areas. This article suggests that with regard to the issuance of ultra-long-term special treasury bonds on the mainland, it is suggested that a completely market-oriented approach should be adopted to strengthen coordination and cooperation with the monetary policy departments to maintain the stability of the financial market. In terms of issuance period, it is recommended to focus on 30 years, and a longer issuance period can effectively alleviate the government's debt repayment pressure. In terms of the scale of issuance, it is necessary to reasonably grasp the balance between economic and social benefits and potential debt risks, and scientifically determine the scale of issuance of special treasury bonds in the next few years. With regard to the use of special treasury bonds, it is necessary to clearly define the boundary between the government and the market, and the government cannot replace excessive investment by market players. Establish an effective evaluation mechanism, supervision mechanism and accountability mechanism for the use of special treasury bond funds, and improve the management of the whole process. For projects for which local governments have relatively complete preliminary preparations, budgets should be issued as soon as possible to give full play to their multiplier effects. The physical workload should be formed as soon as possible to provide strong support for economic growth to achieve the expected goals.

The necessity of issuing special government bonds for several consecutive years

The issuance of ultra-long-term special treasury bonds was proposed against the backdrop of an unexpectedly sluggish real estate industry and consistently weak domestic demand. Expanding long-term investment in the two major sectors is a major strategic decision made by the CPC Central Committee and the State Council, which provides strong support for maintaining steady economic development. Specifically, the first is the continuous stimulation of domestic demand. The issuance of special treasury bonds for several consecutive years can promote the average annual growth of effective investment to remain within a certain range, form a physical workload year by year, and promote the steady growth of social investment in fixed assets and private investment.

The second is to promote industrial upgrading and economic transformation. The issuance of special treasury bonds for several consecutive years can ensure the continuous development of fiscal power and promote the success of the gradual transformation of the economy. The gradual and dual-track system is the general idea of China's economic reform, and the steps to promote it are also from easy to difficult, from point to surface, and from shallow to deep. After years of rapid growth, the old real estate plus infrastructure development model is no longer suitable, and the transformation and upgrading of industrial structure has become the key to promoting high-quality economic development.

Finally, it optimizes the structure of government debt. The central government has increased leverage for several years in a row to ease the debt pressure of local governments. The future high-quality growth and development of China's economy depends on the stability and improvement of the leverage ratio. For policymakers, the amount of debt that can be sustained can be judged based on the economic growth rate of 5%, and whether the debt is sustainable according to the characteristics of the domestic economic and fiscal system. In the past few years, we have made great achievements in macroeconomic regulation and control to stabilize leverage, and the debt-to-GDP ratio has been relatively stable. In terms of sub-sectors, the debt ratio of the central government is not high, there is still room for leverage, and the debt ratio of the residential sector is relatively safe, but the debt ratio of local governments and the enterprise sector is relatively high, especially some local financing platforms and other state-owned enterprises have been seriously insolvent and have lost their solvency. Therefore, China's total debt is not worth worrying about, the structure is the core, and the adjustment of leverage should also be stable and continuous improvement in terms of structure.

How to issue special treasury bonds

In terms of maturity structure, ultra-long-term bonds accounted for a relatively low proportion of the stock of treasury bonds issued by the mainland after 2000, and the selection of ultra-long-term treasury bonds this time is conducive to enriching the yield curve of mainland treasury bonds. Among the existing ultra-long-term treasury bonds, the issuance maturity of 30 years accounts for the highest proportion, followed by 50 years, 20 years and 15 years. Considering that most of the two-fold projects supported by special treasury bonds are large-scale and long-term projects, a longer issuance period can effectively alleviate the government's debt repayment pressure and give local governments a certain amount of time to optimize their fiscal structure and solve the land finance problem. Therefore, in order to avoid the impact of the concentrated maturity of special treasury bonds on the treasury, it is recommended that the duration of the issuance be mainly 30 years.

In terms of issuance method, in the context of the current asset shortage, it is recommended to adopt a completely market-oriented issuance method, and directional issuance should not be used or used in small quantities. The completely market-oriented issuance method can strengthen the construction of the primary market for treasury bonds, promote the healthy and positive development of the treasury bond market, objectively assess the market effect brought about by the issuance of special treasury bonds, and provide practical experience for the further improvement of the mechanism for the issuance of special treasury bonds. In terms of the holder structure, it is necessary to increase the proportion of bonds held by institutional investors such as commercial banks, securities companies, fund companies, and social security funds, promote the participation of foreign-funded institutions in the mainland bond market in an orderly manner, give foreign investors preferential tax treatment and other national treatment, encourage non-bank institutions to actively participate in treasury bond market transactions, and promote the efficient and active secondary trading market. In addition, fully market-oriented issuance can also effectively improve the implementation effect of the central bank's open market business......

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Article source丨Tsinghua Financial Review, Issue 125, April 2024

This article is edited by Wang Mao

Editor-in-charge丨Ding Kaiyan, Lan Yinfan

Preliminary trial丨Xu Lanying

Final Review丨Zhang Wei

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