China Increases Bond Issuance to Help Its Economy

China ramped up efforts to stimulate its beleaguered economy, issuing additional sovereign bonds and raising its budget-deficit target, the first time it revised its budget outside the regular legislative session in more than a decade.

The country’s top legislative body approved on Tuesday a plan to raise 1 trillion yuan, equivalent to around $137 billion, in additional sovereign debt, half for use before the end of this year and half for next year, according to the official Xinhua News Agency. Policy makers said the bond issuance was intended for infrastructure projects in the wake of severe flooding and other natural disasters, Xinhua reported.

The latest stimulus, which follows a flurry of piecemeal measures such as interest-rate cuts and the lowering of mortgage costs for home buyers, signals that Beijing continues to worry about the weakness of the economic rebound it had counted on after doing away with all pandemic restrictions.

Part of the problem is a mounting debt burden for local governments in more areas of the country and a real-estate crisis that shows little sign of abating. Beijing has so far avoided offering support to households to help the economy transition into one more driven by consumption, in large part because of leader Xi Jinping’s focus on ideology and reluctance to resort to handouts to consumers.

While many economists puzzled over the timing of the announcement as growth in recent weeks has appeared to stabilize, they viewed the new debt issuance as incremental in nature and said it wouldn’t be enough to reverse longstanding headwinds for the economy such as a lack of demand from businesses and consumers.

The 1 trillion yuan of sovereign bonds make up less than 1% of China’s gross domestic product. By comparison, the stimulus China launched in the 2008 global financial crisis accounted for more than 12% of its GDP at the time.

“It’s certainly not a game changer,” said Larry Hu, chief China economist at Macquarie Group. “But it confirms that the overall policy stance stays supportive given the recovery is still fragile.”

Some economists say the stimulus bill sent an unusual signal that the central government is willing to shoulder responsibility in funding infrastructure projects, after leaving the task to local governments for much of the past few decades.

The Wall Street Journal reported in June that policy makers weighed issuing around 1 trillion yuan in special treasury bonds to help indebted local governments and prop up business confidence. The policy proposal didn’t get approved at the time by Xi, who has centralized decision-making. In the top leader’s view, austerity is preferred over stimulus, according to people close to Beijing’s policy-making process.

But the heavy flooding this summer displaced millions of people and further strained finances in northeast China, especially the province of Hebei that neighbors Beijing. Public anger flared up following the losses caused by the flood.

The decision to help the disaster-struck regions was made at a high-level meeting presided over by Xi in August, according to Tuesday’s Xinhua article.

Much of the new debt raised will be used to help with reconstruction after recent flooding, improve urban drainage and help fend off other natural disasters, according to the plan that was approved by the standing committee of the National People’s Congress this week, Xinhua said.

As a result, China’s official fiscal deficit, which doesn’t count special bonds issued by local governments, will rise to 3.8% of GDP, up from the 3% ceiling set by the government in March.

While the fresh stimulus should help China maintain 10% growth in infrastructure investments for the remainder of the year, according to Hu from Macquarie Group, it falls short of the type of stimulus that economists say China desperately needs: direct or indirect transfer of wealth to households to boost consumption.

Chinese officials last week reported a stronger-than-expected 4.9% on-year growth in the third quarter, a result that will likely ensure China will hit around 5% growth this year as desired, dimming the prospect for Beijing to unleash more relief measures urgently, economists said.

China last changed its budget outside the legislative session in 2008, when officials said they planned to spend 1 trillion yuan in funds raised through local government funding, bank loans, donations from residents and other channels to rebuild areas devastated by the Sichuan earthquake. Later that year, Beijing announced a stimulus package it billed as totaling $586 billion to bolster domestic demand and help avert a global recession.

“It is rare for the central government’s fiscal plans to be revised outside the usual budget cycle, so this move signals clear concern about near-term growth,” economists from Capital Economics said in a note to clients.

The funding gap for local officials has been exacerbated by the bursting property bubble, since local governments long have counted on land sales as a source of revenue, said Wei Yao, chief Asia economist at Société Générale.

“At minimum, Beijing recognized that local governments face structural fiscal constraints,” she said. “That’s a pretty big deal.”

Former New Hampshire Gov. Chris Sununu delivered a warning to Treasury Secretary Scott Bessent during a recent visit to Washington: Already-high airfares will surge if the war in Iran doesn’t end soon.

Sununu, a Republican who represents some of the biggest airlines as president of the industry group Airlines for America, has for weeks sounded the alarm to Trump administration officials about the economic fallout from high jet fuel prices. The war, Sununu has argued, must come to a close soon, or things will get worse.

Administration officials have gotten the message.

Privately, President Trump’s advisers are increasingly worried that Republicans will pay a political price for the rising fuel costs, according to people familiar with the matter. Many of those advisers are eager to end the war, hoping prices will begin to moderate before November’s midterm elections.

The fallout from the U.S.-Israeli attack in late February has slowed traffic through the Strait of Hormuz, a vital shipping lane, triggering a sharp increase in oil, gasoline and jet-fuel prices.

That means consumers are grappling with high costs ahead of the summer travel season, as they consider vacation plans.

Sixty-three per cent of Americans said they put a great deal or a good amount of blame on Trump for the increase in gas prices, according to a new poll conducted by NPR, PBS and Marist.

More than 8 in 10 Americans said struggles at the gas pump are putting strain on their finances.

Jet-fuel prices roughly doubled in a matter of weeks after the war began, and they have remained high. Airlines have said that will add billions of dollars of additional expenses this year, squeezing profit margins.

U.S. airlines spent more than $5 billion on fuel in March—up 30% from a year earlier, according to government data.

Carriers have been raising ticket prices, hoping to pass the cost along to consumers, and they are culling flights that will no longer make money at higher price levels.

In March, the price of a U.S. domestic round-trip economy ticket rose 21% from a year earlier to $570, according to Airlines Reporting Corp., which tracks travel-agency sales.

So far, airlines have said the higher fares haven’t deterred bookings and they are hoping to recoup more of the fuel-cost increases as the year goes on.

Earlier this week, Trump said the current price of oil is “a very small price to pay for getting rid of a nuclear weapon from people that are really mentally deranged.”

Secretary of State Marco Rubio told reporters that if Iran got a nuclear weapon, the country would have more leverage to keep the strait closed and “make our gas prices like $9 a gallon or $8 a gallon.”

Trump has taken steps in recent days to bring the war to an end. Late Tuesday, the president paused a plan to help guide trapped commercial ships out of the Strait of Hormuz, expressing optimism that a deal could be reached with Iran to end the conflict.

Crude oil prices fell below $100 a barrel on Wednesday, after reports that Iran and the U.S. are working with mediators on a one-page framework to restart negotiations aimed at ending the conflict and opening the strait.

Sununu said Trump administration officials are conscious of the economic fallout from the war: “They get it…and I think that’s why they’re trying to get through the war as fast as they can.”

But he cautioned that it could take months for prices to return to prewar levels.

“Ticket prices won’t go down immediately” after the strait is fully reopened, Sununu said. “You’re looking at elevated ticket prices through the summer and fall because it takes a while for the prices to go down.”

Since the initial U.S.-Israeli attack in late February, Sununu has met in Washington with National Economic Council Director Kevin Hassett, representatives from the Transportation Department and senior White House officials.

A White House official confirmed that Hassett and Sununu have discussed the effect of increased fuel prices on the airline industry. The official said the conversation touched on how the industry can mitigate the impact of high jet fuel prices on consumers.

“The president and his entire energy team anticipated these short-term disruptions to the global energy markets from Operation Epic Fury and had a plan prepared to mitigate these disruptions,” White House spokeswoman Taylor Rogers said, pointing to the administration’s decision to waive a century-old shipping law in a bid to lower the cost of moving oil.

Rogers said the administration is working with industry representatives to “address their concerns, explore potential actions, and inform the president’s policy decisions.”

A Treasury Department spokesman pointed to Bessent’s recent comments on Fox News that the U.S. economy remains strong despite price increases. The spokesman said Treasury officials have met with airline executives, who have reaffirmed strong ticket bookings.

“We’re cognizant that this short-term move up in prices is affecting the American people, but I am also confident, on the other side of this, prices will come down very quickly,” Bessent told Fox News on Monday.

The war has already contributed to one casualty in the industry: Spirit Airlines. Company representatives have said they were forced to close the airline because the sustained surge in jet-fuel prices derailed the company’s plan to emerge from chapter 11 bankruptcy.

The Trump administration and Spirit failed to come to an agreement for the company to receive a financial lifeline of as much as $500 million from the federal government.

Transportation Secretary Sean Duffy has argued that the Iran war wasn’t the cause of Spirit’s demise, pointing to the company’s past financial struggles, as well as the Biden administration’s decision to challenge a merger with JetBlue.

Other budget airlines have also turned to the federal government for help since the U.S.-Israeli attack. A group of budget airlines last month sought $2.5 billion in financial assistance to offset higher fuel costs, and they separately wrote to lawmakers asking for relief from certain ticket taxes.

China Increases Bond Issuance to Help Its Economy

Move to fund infrastructure projects comes alongside unusual increase of budget-deficit target

Administration officials have spoken to the airline industry, which has voiced concerns about the rising costs.