The landing of "1 trillion special national bonds": opportunities and worries for ordinary people

Wu Xiaobo Channel

2024-05-16 09:40Posted on the official account of Zhejiang Hangzhou Bajiuling Cultural and Creative Co., Ltd

"Buying ultra-long-term special treasury bonds is gambling on the survival of the country's fortunes, and the right to pay a pension to the state for 50 years."

Text / Ba Jiuling (WeChat public account: Wu Xiaobo channel)

In the past month, the owner of the lottery shop has been a little busy and a little worried: there are many people who come to the store to buy lottery tickets every day, but they are most afraid of being asked "whether there is a scratch ticket". Because in many lottery shops, scratch tickets have been sold out.

The data also confirms this "short supply". The 2024 Welfare Lottery has a printing logistics budget of 530 million yuan, an increase of 20% from last year. However, the sales of scratch tickets in the first quarter were as high as 38.98 billion yuan, a year-on-year increase of 81%.

In this situation, the relevant departments and the media shouted: Scratch is the spiritual opium that has been hollowed out of the purse, and everyone has gone to buy lottery tickets, so there is no money to spend, which will have an adverse impact on the economy.

But everyone knows that income expectations are declining, currency depreciation expectations are increasing, and you have to think of ways to preserve and increase the value of your money.

As a result, Hong Kong stocks rose sharply, the newly issued 45 billion yuan of treasury bonds were "sold short in 3 seconds", and the deposit products of village and township banks with interest rates close to 4% were frantically robbed...... The anxiety of asset allocation is pervasive, where are the good investment channels?

Old people queuing up to buy government bonds

One

Opportunities come when they say they come.

In the past two days, there has been a blockbuster news: the Ministry of Finance announced the relevant arrangements for the issuance of general treasury bonds and ultra-long-term special treasury bonds in 2024. Among them, the words "1 trillion yuan of ultra-long-term special treasury bonds" were magnificent, which shocked many people.

Translated, "ultra-long-term" means that the bond issuance period is greater than 10 years, and "special" means that the funds are used for special projects, such as national defense, science and technology, and people's livelihood, and are not included in the fiscal deficit. Unlike in the past, this batch of "1 trillion yuan" was not issued at one time, but in batches over the next few years, with maturities of 20, 30 and 50 years.

In fact, as early as this year, the government work report of the two sessions has already been "vaccinated". According to the NDRC, the financing will focus on high-tech industries (such as chips), improving energy security, promoting urban-rural integration development, and promoting common prosperity.

These projects all have one characteristic: the construction period is long and requires long-term matching financial support. PSLs, which are usually used for construction (e.g. "shantytown renovation"), have a low cost of capital but only have a five-year issuance period. In contrast, the time advantage of ultra-long-term special government bonds is highlighted.

Special treasury bonds are generally issued in a directional manner, that is, the subscribers are mainly state-owned commercial banks, and there is no need for each bidding; There are also market-oriented issuances in which the coupon rate is determined through public bidding, and like ordinary government bonds, individuals also have the opportunity to subscribe for them. The Chinese government website issued a document saying that individuals can go to bank counters, online platforms and securities markets to buy, thus inferring that this is a market-oriented issuance.

Bank counter business

In short, this particular bond is closely related to China's economic transformation, and the possibility of China's modernization dividend is also hidden in it.

In other words, if you buy this special treasury bond, you are gambling that the fortunes of the country will still exist, and you should pay a pension to the state for 50 years. And every six months to get money, the day of redemption is just the day of "520", and the Pomeranian can smile, wouldn't it be wonderful.

Two

In fact, the first interpretation of the so-called "opportunity" is to provide an investment channel for ordinary people, while the other meaning is to increase the value of assets.

Zhang Wuchang, a well-known economist, made a controversial view in December last year: compared with the transitional nature of income, the decline in asset (house) prices means that residents' expectations for future income have fallen permanently. The expected decline leads to sluggish consumption and eventually economic deflation. Therefore, it is necessary to bring the inflation rate to a certain level as soon as possible.

The social finance data in April is ugly, while the broad money M2 is still growing in recent months, which means that the currency has been idling in the system (such as borrowing the old for the new, deposit and loan arbitrage, and interbank idling), and the people still dare not spend aggressively.

In fact, today there are already some signs of "pulling inflation" as Zhang Wuchang said. For example, interest rates continue to fall, the yield of wealth management products of banks and insurance has declined, the prices of high-speed rail, water, electricity and gas have risen, and there may be a wave of home appliance price increases in June. All of this seems to indicate that there is a force that forces everyone to spend and invest.

So, combined with the 1 trillion ultra-long-term special treasury bonds discussed today, does it mean "releasing water"?

In nature, the release of water refers to the release of money and monetary easing policy, while the special treasury bonds actually only increase the use of money and the demand for money, and the funds are only transferred from the hands of ordinary people and enterprises to the state finance, and there is no increase, so it cannot be said that water is released, and the expression of the image should be "water" or "adding noodles".

However, economist Zhu Zhenxin explained: "In the cycle of increasing leverage since last year, there must be monetary easing (or water release), because if you add a lot of faces, but do not add water, the financing cost will rise, which is not conducive to stimulating demand." "In other words, it is necessary to release the water or to release the water.

Therefore, there is a thinking behind the landing of ultra-long-term special treasury bonds: in the era of credit money, inflation is the eternal theme, and assets and liabilities are in line with the theory of relativity. When we have a property of 1 million yuan and a debt of 2 million yuan, we will feel that the sky is about to fall; When everything is rising, when the value of our property is pulled to 3 million yuan, what is the debt of 2 million yuan, we suddenly have the momentum to move forward again - this is the magic of modern credit money, the impact is as small as the growth of personal wealth, as large as local debt swaps, and even China's national fortunes.

Judging from the content of the government work report, the special treasury bonds, which used to be a one-time tool, may become routine in the future, and it is unknown whether it is a kind of "testing the waters" in the early stage today, but there are several questions of general concern that still need to be answered, such as whether the issuance of bonds with monetary easing is really a good way to stimulate the economy? What impact does it have on the asset side (e.g. house)? What role does it play in bailing out local debts?

We've invited some of the biggest names in the macroeconomics field to hear their professional perspectives.

At present, the most prominent contradiction in China's macroeconomy is still the lack of aggregate demand. Against the backdrop of low expectations and confidence of households and businesses in the future, and weak momentum for active leveraged investment and consumption, the effect of expansionary monetary policy is not good, and it is necessary to rely on expansionary fiscal policy to actively create demand.

However, the impact of the structural adjustment of the real estate sector, on the one hand, the national tax revenue is not satisfactory, and on the other hand, the local government debt is high, so it is necessary to provide financial support for more expansionary fiscal spending.

Two more points related to finance and assets.

First of all, since the beginning of 2014, financial-related indicators have been very sluggish. Due to the decline in housing prices and sluggish transaction volumes, the bank loan market, which relies on real estate as the main collateral, is not functioning well, which is an important reason why China's financial cycle is still in a downward phase.

Against this backdrop, a massive increase in government bond issuance could provide new, high-quality collateral for China's financial system, which could help mitigate the downturn in China's financial cycle and thus strengthen the foundation for economic growth.

Second, one of the key obstacles to the opening up of China's financial market is the insufficient supply of high-quality bonds in China's bond market. Foreign investors need larger-scale and more liquid financial products.

As a high-grade bond issued by a large emerging market economy with medium and high-speed growth, huge scale and excellent historical credit, Chinese government bonds have the potential to become important safety assets in the world. Therefore, increasing the scale of issuance of RMB-denominated treasury bonds will not only help the government finance, but also help to prosper the financial market, and also help promote the internationalization of the RMB.

The main purpose of ultra-long-term special treasury bonds is to hedge against the downward pressure on the economy, which is essentially a force point in the new round of government leverage cycle.

In the past, China has gone through several rounds of leverage: from the initial corporate leverage of export-oriented enterprises to the household leverage of household sector to buy houses, and then from the leverage of local government off-balance sheet financing vehicles to the corporate leverage of some cyclical industries represented by real estate. Now it is actually a new round of leverage cycle dominated by the central government, and the issuance of ultra-long-term special treasury bonds is one of them.

I believe that it is very necessary for the central government to assume the function of issuing bonds and increasing leverage. This is because the household sector, the corporate sector, and local governments have all encountered bottlenecks in increasing leverage, and there is even pressure to deleverage. If there is no entity to increase leverage, the pressure on the entire economy to deleverage will become very large, which will cause the so-called "balance sheet recession". Only by issuing bonds, expanding the balance sheet, and expanding effective demand can we get out of this vicious circle.

With regard to the resolution of local government bonds, ultra-long-term special government bonds are helpful. First of all, it is more standardized, less costly, and has a longer term, so there is less pressure on the use of funds. Now that there are a lot of local debts, the pressure to increase them is relatively large, so the central government will bear this part.

For example, from 2016 to 2019, the government issued long-term bonds to replace some local non-standardized debts, which was actually an action to reduce debt pressure. Although it is not a direct issuance of local government bonds, in fact, a lot of funds are used in local construction, which will certainly alleviate part of the local fiscal shortfall.

When the economy slows, time becomes cheaper, and risk becomes more expensive, it is precisely the time to issue ultra-long-term government bonds. In order to transform a long-term state-led accumulative-oriented industrialized society into a modern consumer-oriented society dominated by people's livelihood, the government must undertake the mission of the new era, which can be summarized by Chinese-style modernization.

It took China a few decades to complete the centuries-old industrialization and urbanization process of developed countries. But in the process of rapid accumulation of state capital, a large amount of debt and leverage have also accumulated.

Whether debt is a devil or an angel is not the debt itself, but whether the return on assets (ROA) can at least cover the cost of debt. If these assets are not revitalized, and the market economy and private enterprises are not vigorous, it will be an unfinished project.

Therefore, this is actually a problem of modernization of national governance, and it is the result of the long-term accumulation of contradictions between the central and local governments in the governance of major countries. It comes from the long-term game between the central government and the local government, which makes the local government bear unlimited responsibility but limited financial power, and the huge local deficit accumulated can only rely on "bond issuance + land sale", which is actually an overdraft of future credit and finance. In the case of shorter and shorter term of office at the local level, there is an adverse selection of "whoever does not issue bonds will suffer".

We can't just look at the problems without seeing the achievements, China's modernization is an ultra-long-term national vision, so it needs to be supported by ultra-long-term national debt. One asset side, one liability side, and strive to build a new national balance sheet. It is about 1 trillion yuan per year, and it is expected to increase year by year.

In addition, real estate and local government bonds are also specific products of China's specific stage of rapid urbanization, and the problems that arise are the result of long-term contradictions, so they also need to be solved by long-term thinking – which means that if China's modernization can be carried out smoothly, the risks of real estate and local government bonds will naturally be solved.

The impact of special government bonds on real estate:

◎ First, it is difficult for the special treasury bonds to directly benefit the property market because the investment areas are focused on the industries and security-related fields that are supported by the government, and the driving force for the rise of housing prices is not obvious, but by increasing the investment of the government, it will play a supporting role in the stability of many local economies, and the economic improvement will be enhanced, which is conducive to the further stability of the property market.

◎ Second, it will further reduce the investment demand for real estate, which may have a certain impact on investment-based commercial projects, due to the high credit rating and stability of treasury bonds, some prudent investors are more inclined to hold treasury bonds, and the uncertainty of investment returns in commercial real estate has increased in recent years, making more stable preference small and medium-sized investors will be more inclined to invest in treasury bonds.

◎ Third, for the overall housing price driving force is weak, but for some urban areas may be strengthened, such as Shanghai Lingang and other areas dominated by chips and new energy, the increase in construction investment brought by national bonds will drive the faster development of the industry, as well as the introduction of more industrial population, and the support for regional housing prices will be further enhanced.

The author of this article | Xu Tao | Editor-in-Charge | He Mengfei

Editor-in-Chief | He Mengfei | Image source | VCG

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