A new management method to be adopted this year will help manage
China's national debt in a more effective way and reduce related
risks, the Ministry of
Finance has pledged.
In a report submitted to?the Fourth?Plenary
Session of the 10th National People's Congress (NPC)?that
opened yesterday, the ministry said the new system will replace a
25-year-old practice of setting annual quotas on treasury bond
issuance, which has been less effective in controlling the scale of
national debt and ensuring an optimal term structure, analysts
say.
Under the old system, the ministry tended to issue long-term
bonds, which put less repayment pressure than short-term debt, but
led to high levels of national debt.
China's debt amount stood at 2.9 trillion yuan (US$358 billion)
at the end of 2004, accounting for 21.6 percent of the gross
domestic product (GDP), which was still far below an
internationally recognized 'alarm line' of 60 percent.
This year will likely witness a surge in the issuance of
short-term treasury bonds, or those due to be repaid in less than
one year, which will help meet the market's long-standing thirst
for such products, and possibly drive down prices of financial
instruments with corresponding terms and improve yields, according
to Hu Weidong, an analyst with Xiangcai Securities.
The ministry's treasury bond issuance plan for the first quarter
of this year, which was?announced last month, notably included
a three-month tranche -- unseen in many years.
The anticipated availability of short-term treasury bonds will
also give the central bank a better chance to mop up excess
liquidity in the money market, analysts commented.
Chiefly due to a dearth of short-term treasury bonds, the
People's Bank of China (PBC)?has been
issuing short-term central bank bills in the past few years to
reduce the amount of liquidity in the banking system. Excess
liquidity is partly a result of the central bank's purchase of
excess dollars in the market?that aimed to enforce the trading
band of the renminbi.
Central bank bills bring the?country higher costs and
influence long-term interest rates in an undesired way.
Analysts have also warned against increasing the issuance of
short-term treasury bonds too rapidly.?
Short-term treasury bonds may dampen demand for corporate bonds
with similar terms, which in China are probably less attractive to
investors largely due to the higher risks. But Chinese companies
are still struggling to raise more funds in the bond market, as the
stock market and banking sector fail to provide adequate
funding.
(China Daily March 6, 2006)
