China is now holding auctions for its long-planned special treasury bonds worth around 1 trillion yuan or roughly $141 billion. The government started auctioning off the bonds to interested investors this week, with the auctions expected to be concluded by the end of July.
The special treasury bonds issued by the Chinese government are meant to support the country's continued efforts to alleviate financial pressures and fuel its full recovery from the economic impact of the coronavirus pandemic. The bonds are being issued by the country's Ministry of Finance, which had initially announced its creation back in May as part of China's economic stimulus strategy.
Since its announcement, market participants have been closely monitoring details regarding its issuance given how it could affect overall market liquidity. According to sources, which claimed to have attended meetings held by China's finance ministry, the bonds will be segmented depending on their maturity length.
The same sources revealed that 70 percent of the special treasury bonds will have a 10-year maturity term, while 20 percent will have a five-year maturity term. The rest of the special treasury bonds will be offered with a seven-year term.
The government kicked off the long-planned 1 trillion yuan special treasury bond offering on Thursday last week by auctioning off 100 billion yuan-worth of the bonds. On Monday, the Ministry of Finance auctioned off an additional 50 billion yuan worth of its five-year bonds and another 50 billion yuan-worth of its seven-year bonds.
The funds that will be accumulated throughout the bond sales will be used to offset the government's massive spending during the height of the pandemic in the country. The funds will also be used to support further economic stimulus packages to accelerate the reopening of businesses and industries throughout the nation.
During the first quarter of this year, China's economy had contracted by more than 6.8 percent, the first contraction in decades. The country was the first to be hit with the pandemic earlier in the year, causing massive disruptions in supply chains and business operations. Business activity also massively declined during the first few months of the year, resulting in closed businesses and lost income. The government had to quickly step in to provide support to affected individuals and businesses, costing it billions of dollars with the launch of various programs and support packages.
Apart from supporting Chinese businesses, the government could also use the added funds from the bond sales to support its network of state-owned enterprises, which had also been severely affected by the pandemic.
