Coronavirus: China to revive special ‘off-budget bonds’ as pandemic stokes debt dilemma
- Beijing plans to issue ‘off budget’ bonds to tackle the economic impact of the coronavirus outbreak
- Although they will not appear on government books, the additional debt must be repaid and weak finances could jeopardise China’s credit rating, analysts say
The Chinese government has found itself in a tough spot. After years of trying to clamp down on the nation’s high level of debt, it is now being forced to watch it balloon again to rescue its coronavirus-stricken economy.
But to make sure the extra borrowing does not become a feature of government finances, Beijing is using an accounting sleight of hand to keep a new bond issue “off budget” – and not a part of deficit spending.
Still, Beijing must be careful, analysts said, as the additional debt must be repaid and could jeopardise the country’s credit rating if economic conditions deteriorate further.
“Off-budget doesn’t mean it can be excluded from the overall debt level,” said David Wang, head of China economics at Credit Suisse.
Even if officially the special bonds are accounted for differently from traditional methods, it does not change the fact that the government is borrowing money
“Even if officially the special bonds are accounted for differently from traditional methods, it does not change the fact that the government is borrowing money.”
China’s economy shrank 6.8 per cent in the first quarter in what was the first official quarterly contraction since 1992. Amid the uncertainty, the State Council is taking steps to tackle the impact of the virus.
It is increasing on-budget spending to support the economy, borrowing that will raise the budget deficit ratio as a percentage of gross domestic product (GDP.)