Who is buying special government bonds

Late LatePost

2024-05-17 22:34Posted on the official account of Beijing LatePost

On May 17, China's Ministry of Finance issued 40 billion yuan of 30-year ultra-long-term special treasury bonds (Phase I) with a coupon rate of 2.57%, which will be paid on May 20 and November 20 each year (postponed accordingly in case of holidays) until May 20, 2054. According to the plan, the Ministry of Finance will issue 1 trillion yuan of ultra-long-term special treasury bonds this year.

According to the official website of the Ministry of Finance, the 2024 ultra-long-term special treasury bond (phase II) will be tendered on May 24 and is a 20-year fixed-rate interest-bearing bond with a total amount of 40 billion yuan. On June 14, the Ministry of Finance will also issue a 50-year ultra-long-term special treasury bond.

The biggest "special" thing about special government bonds compared with general government bonds is that although they are still government debts, they are not included in the fiscal deficit. China's fiscal deficit target has been 3% for many years. According to the Fudan Center for Financial Research, the 3% rate is based on one of the EU's 1993 accession thresholds: a deficit rate of less than 3%.

Unlike ordinary savings treasury bonds, which can be bought with a few clicks on the bank counter or mobile phone app, the special treasury bonds issued this time are book-entry treasury bonds, which are first issued to institutional investors in the primary market through book-entry treasury bond underwriting syndicates, and then recorded in electronic bookkeeping at the Central Clearing Company, and individual investors should buy from institutional investors in the secondary market, such as brokerages and banks, after the bonds are listed.

According to the "Southern Metropolis Daily," the first few issues of special treasury bonds this year are expected to be most likely to be taken over by institutions, and the report quoted a staff member of the Agricultural Bank of China as saying that the special treasury bonds of the Agricultural Bank of China are now only open to securities, insurance, and other financial institutions. A staff member of the Shanghai branch of a major state-owned bank told us that they have not received sales notices for individual investors for the time being.

Not counting this special treasury bond, China has issued three rounds of special treasury bonds in its history, namely in 1998, 2007 and 2020, respectively to replenish the capital of commercial banks, purchase foreign exchange to inject capital into CIC, and fight the epidemic. The first two rounds of subscriptions to these special treasury bonds were basically institutions. In 2020, the protest special government bonds were jointly subscribed by financial institutions, enterprises and residents due to their special purpose and urgency.

In 1997, it was issued to the four major banks of "Workers, Peasants, and China Construction". At that time, the central bank lowered the reserve requirement ratio, and about 240 billion yuan of deposit reserves of the four major banks became excess reserves, plus the original 30 billion yuan of excess reserves, a total of 270 billion yuan of reserves were deposited in special accounts according to the requirements of the central bank. In August of that year, the four major banks subscribed to the Ministry of Finance 270 billion yuan of special treasury bonds, and the Ministry of Finance used the money to inject equal amounts of capital into the four major banks. The ultimate holder of Treasury bonds is actually the central bank.

In 2007, 1.55 trillion yuan of special treasury bonds were issued, of which 1.35 trillion yuan was issued by the Ministry of Finance to the Agricultural Bank of China and 0.2 trillion yuan was issued to the public. The more complicated part is the directional part, the specific method is that the Ministry of Finance purchases the equivalent amount of foreign exchange from the central bank after raising RMB funds, and at the same time, the central bank uses the RMB obtained from the sale of foreign exchange to purchase the equivalent of special treasury bonds from the Agricultural Bank of China. Finally, the ultimate holders of treasury bonds include central banks (directional), financial institutions, and individuals (public offerings).

The central bank did this to comply with the relevant provisions of the People's Bank of China Law, and the relevant person in charge of the Ministry of Finance also explained in 2007:

The reason for adopting this mode of operation is that by purchasing special treasury bonds from the Ministry of Finance and selling them to the People's Bank of China, commercial financial institutions can implement measures to purchase foreign exchange by issuing special treasury bonds in accordance with the principle of marketization, so that their trading behavior follows the laws of the market.

The foreign exchange obtained from the issuance of these special treasury bonds was injected into CIC. In 2023, CIC surpassed the Norwegian government pension fund with US$1.35 trillion in assets under management, becoming the world's largest sovereign wealth fund. (Gong Fangyi)

View original image 67K

•