Laughing at the Development Bank: China mulls another monstrous stimulus plan

In potentially cheering news for fans of insane infrastructure spending, it looks like China has finally lost patience with its soft-and-soft approach to a 2022 economy cracked by COVID and punctured by property.

The possibility lifted commodity markets on Friday; metals too since copper jumped 4%.

So, gentlemen, start your pneumatic presses. Because the word is that Beijing is unleashing a familiar beast in an unfamiliar way.

Bloomberg’s very good reporter Li Yanping said that the local government will soon be able to go ahead and raise and then spend $220 billion – 1.5 trillion yuan – on special bonds during of the next six months. Li said he spoke with some of the officials involved in the talks who asked not to be named as they are only authorized to disclose anonymously.

And while the information remains fully verified by me, Ms. Li has a decent access history – and frankly, a Bloomberg subscription is very expensive – so if cost is any measure, I’m pretty sure it is. gold.

The program would both give the green light and accelerate a monumental increase in debt issuance by governments below the provincial level, the vast majority going to infrastructure investment to support China’s crippled economy, but cannibalizing the cache that was to be used in 2023.

Li says he was told that the 1.5 trillion yuan in bond sales will be carried over from next year’s local debt issuance quota, the US $220 billion fiscal stimulus package is a sign pretty clear that Beijing is running out of ideas for a second half of 2022 already brimming with political, social and economic significance.

The news comes as the Beijing city government says it will increase spending by offering residents the old wine and dinner vouchers as local governments across China try to support discouraged consumers and get out people and spending after the trauma of COVID lockdowns.

It seems very unlikely that this step will bring the GDP growth rate for the full year to the 5.5% target, and if Li is on the money, it is another sign of the real tension of the economic/social situation there in times of confinement, assistance- broken down and closed lands.

Via China Bureau of Statistics/Nikkei

Go out and build

The vast and intricate network of visually impaired local officials who have been at the very heart of China’s ongoing housing crisis appear to be the go-to guys again – but are they best placed to kick-start consumer demand in a battered economy? up-down, lockout zero-COVID-19 policy.

The local government sold a record 1.95 trillion yuan — $289 billion — of such bonds in June, an increase of nearly 150%, according to metrics provided by Great Wall Securities.

This surpassed the previous COVID-inspired record of 1.3 trillion yuan in April 2020, when Beijing again hit the tried-and-true playbook of driving growth through public investment, most vocally and effectively expressed through to the mad construction of infrastructures.

President Xi Jinping’s hopes of hitting the promised GDP growth target of around 5.5% for this year are looking increasingly like a moonshot – COVID cases doubled in a single day this week in Shanghai.

This whole zero-COVID policy that imposes lockdowns, mass screening and quarantine, is a terrible weight on the back of an economy that was supposed to be driven by domestic consumption.

Yet as the engine sputters and the burden mounts, China has seemingly gone big and gone back to basics.

Meanwhile, the China Development Bank (CDB), China’s historical big daddy of asset-based political lending, will fund the majority of the 300 billion yuan ($45 billion) infrastructure stimulus, officials speaking with officials say. officials of the current Caixin government.

The CDB and the Agricultural Development Bank of China (ADBC), the second largest political lender, will share the increase (210 billion yuan and 90 billion yuan respectively), Caixin said.

The State Council under Premier Li Keqiang confirmed the 300 billion yuan fundraising last week, saying it would be used as capital to drive new major infrastructure projects or as bridge financing for projects. which will now be supercharged by the 1.5 trillion local governments. -purpose bonds which, according to Bloomberg, are on the cards in an unprecedented acceleration in infrastructure financing.

Infrastructure spending is starting to be the pony with a trick the ruling Communist Party is deploying to trigger an economic turbo-charge.

We saw it better post-COVID or even better during the GFC when Beijing launched its fabulous investment wave of around 5 trillion yuan – which not only boosted the post-Olympic economy hell of China – but has physically dragged Australia’s commodity-exporting economy into mud.

Via Alliance Benstein

Yes Kevin. It wasn’t the pink bats.

For this, the party has its three simple political banks – the CDB, the ADBC ​​and the Export/Import Bank of China – which finance often astonishing projects which are largely unprofitable routes to nowhere, but which have been crucial for social stability and economic movement. , driving the big leaps in infrastructure, energy and others.

The People’s Bank of China (PBoC) – the central bankers of the world’s second largest economy – says targeted infrastructure spending will cover all infrastructure projects. These are transport, energy, water conservation, technology and logistics.

Screenshot: Beijing Municipal Government Notice on Specific Measures to Accelerate Recovery via PBoC

Such a traditional quick-fix stimmy is likely to limit the PBoC’s room to ease monetary policy if confirmed. Everyone else, including us, has been busy moving in the opposite direction to contain runaway inflation.

Chinese policymakers have grappled with different constraints, while the country’s beleaguered economy, weakened by stifled domestic consumption and battered exports, has failed to deliver the national response to shifting global allegiances.

Via CEIC/CAIXIN

It now appears that with the economic walls closing as Xi Jinping heads for the unprecedented presidency of three terms and beyond, Beijing has enlisted these must-have banks and mini-governments in the old Big Shot. “all-out” infrastructure investment that has worked before and hopefully decent growth in the bottom half of 2022.

About Barbara J. Ross

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