China to issue bond for stimulus plan

BEIJING, Nov. 14 (UPI) -- China's 4-trillion yuan, or $586 billion, economic stimulus plan is to be partly funded by a 1 trillion yuan treasury bond issue, officials said.

"The central government is likely to issue 500 billion yuan in bonds annually over the coming two years," China Daily quoted an official with the National Development and Reform Commission as telling the 21st Century Business Herald. The official said the rest will come from local fiscal revenues, local government bonds and low-interest loans from state banks.

The stimulus plan to spur growth and boost domestic demand will be implemented in the next two years. China's growth has been slowing, with growth of just 9 percent in the last quarter, down from 11.9 percent in the same period of last year.

The China Daily report quoted Merrill Lynch as saying after the issuance of the treasury bonds, China's fiscal deficit may reach 2.5 percent of GDP but the government expects the system to be in the safe range as long as the deficit is below 3 percent.

One economist said China's national debt to GDP ratio is only 18 percent and even if the entire plan is financed through debt, the ratio will remain below 35 percent. That compares with 75 percent for the United States and 50 percent to 100 percent for most emerging markets, he said.

The China Daily said some foreign news agencies had reported China might use its huge foreign exchange reserves and also sell U.S. bonds to finance the plan but the country decided against it on the advice of industry experts.