Copying and distributing are prohibited without permission of the publisher.


The week in review: China revives special treasury bonds, PBoC cuts reverse repo rate, Safe releases financial data

By Addison Gong
30 Mar 2020

In this round-up, China is ramping up measures to stimulate the economy including by issuing special treasury bonds, the central bank resumed open market operations and lowered the seven-day reverse repo rate, and the foreign exchange regulator has released some key data points.

As the spread of Covid-19 comes under control in the Mainland, China said it will work on a package of macroeconomic policies and measures to propel growth. At a Politburo meeting chaired by president Xi Jinping, the government said it will make sure that proactive fiscal policies will become “more proactive and forceful”, and that prudent monetary policies become “more flexible and appropriate”.

The meeting also said China will “appropriately” raise the fiscal deficit ratio, according to a Xinhua News Agency article published on the government’s website. It said the country will issue special treasury bonds, allow local governments to sell more special purpose bonds at a faster pace to fund infrastructure projects, and guide the loan interest rate lower.

According to Haitong Securities, China issued Rmb270bn ($38bn) of special treasury bonds in 1998 to support the ‘big four’ banks, and Rmb1.55tr in 2007 to purchase $200bn of foreign exchange and set up China Investment Corp. It expects the size of the new special treasury bonds to be around Rmb1tr.

However, the estimate from Morgan Stanley was higher at over Rmb2tr or 2%-3% of GDP, and Nomura between Rmb2tr and Rmb4tr (2%-4% of GDP).


The People’s Bank of China (PBoC) lowered the seven-day reverse repo rate to 2.2% from 2.4% on Monday. The 20bp cut came as the central bank injected Rmb50bn into the banking system through reverse repo operations.


The monetary policy committee of the central bank held its first quarterly meeting of 2020. The PBoC said the impact from the Covid-19 pandemic is “generally controllable” and will guide financial institutions to support the real economy, especially small and micro-sized enterprises and privately-owned enterprises. It promised to use multiple monetary policy tools to maintain “reasonable and adequate” liquidity in the system.

The meeting, chaired by the central bank’s governor Yi Gang, also said China will deepen the interest rate reform and keep the renminbi exchange rate stable at “a reasonable and balanced level”.


The State Administration of Foreign Exchange (Safe) released some key sets of data last Friday.

China’s outstanding external debt, in both local and foreign currencies, stood at Rmb14.36tr at the end of 2019, or the equivalent of $2.06tr. This included Rmb5.94tr – or 41% of the outstanding external debt – of medium to long term debt. Government debt totalled Rmb1.89tr (13%).

In 2019, China's current account recorded a surplus of Rmb976.8bn. In dollars, the current account surplus was $141.3bn. The capital and financial accounts in the country saw a total of Rmb388.4bn in surplus, or $56.7bn in dollar terms.

The Chinese foreign exchange market (excluding foreign currency pairs) recorded total transactions of Rmb12.2tr – or $1.74tr – in February 2020. For the first two months of the year, Rmb25.63tr was traded in the Chinese foreign exchange market.

Between January and February 2020, China’s international trade in goods and services recorded receipts of Rmb2.194tr and payments of Rmb2.457tr – a deficit of Rmb263bn, according to Safe.

The FX regulator also released the country’s international investment position as at the end of last year. China’s external financial assets reached $7.71tr and its external financial liabilities $5.59tr, with net external assets of $2.12tr.


Three of the ‘big four’ Chinese banks reported their 2019 financial results over the weekend. Bank of China recorded net profits attributable to shareholders increased by 4.06% to Rmb187.4bn, China Construction Bank by 4.74% to Rmb226.7bn, and Industrial and Commercial Bank of China by 4.9% to Rmb312.2bn. 

The non-performing loan ratio for the trio stood at 1.37%, 1.42% and 1.43%, respectively.

Fitch Ratings said in a report last Thursday that it expects the NPL ratio for the Chinese banks it rates to potentially rise to around 3.5% from 1.5% at the end of June 2019.


Emerging markets will need $2.5tr in funding amid the spread of Covid-19, according to the International Monetary Fund (IMF).

“We believe this is on the lower end,” said the IMF’s managing director Kristalina Georgieva at a press briefing, following a conference call of the International Monetary and Financial Committee, last Friday. “We do know that their own reserves and domestic resources will not be sufficient. And it is in this context that our members are asking us to do more, doing better, do it faster than ever before, and do it in collaboration with the World Bank and other international financial institutions, which we fully embrace.”

Over 80 countries have placed requests for IMF emergency financing, Georgieva said, an “extraordinary spike” in the number seeking assistance from the fund. According to a press release, the IMF stands ready to use its $1tr financial capacity to support its member countries.


China has officially announced the cost of Covid-19 treatment. Xiong Xianjun, an official with the National Healthcare Security Administration, said the medical cost averaged to Rmb17,000 per patient by March 15. Some 65% of that expense was covered by China’s medical insurance system, with the rest subsidised by fiscal funds.

By Addison Gong
30 Mar 2020