China Finance Ministry Echoes Xi’s Call for PBOC to Trade Bonds

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(Bloomberg) -- China’s Ministry of Finance said it supports allowing the central bank to trade government bonds, reaffirming a comment by President Xi...

-- China’s Ministry of Finance said it supports allowing the central bank to trade government bonds, reaffirming a comment by President Xi Jinping that ignited market speculation about a change of monetary strategy.The ministry called for stepping up coordination between fiscal and monetary policy and “improving the mechanisms of base money injection and money supply adjustment,” in an article written by a study group and published by the People’s Daily on Tuesday.

The ministry’s latest comments come amid heightened focus on China’s borrowing plans. Beijing says it will sell more central-government debt to finance economic programs — a way of shifting the burden of stimulus away from financially strained local authorities.It plans to offer 1 trillion yuan of special sovereign bonds this year, although the timetable isn’t clear.

The central bank already uses government bonds as collateral for loans to commercial banks, and might start doing so more regularly, Chiu said. If that’s not enough to absorb the growing supply of sovereign debt, then additional PBOC purchases could help to smooth markets, he said. Chinese commercial banks hold about two-thirds of sovereign bonds — a much higher share than in the US and Japan, though the comparison doesn’t account for the dominance of state-owned lenders in China’s financial system. The PBOC said it would push for more companies and individual investors to buy the government debt, helping to diversify the portfolio of holders and ensure smooth issuance.

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China Finance Ministry Echoes Xi’s Call for Bond Trading at PBOCChina’s Ministry of Finance said it supports allowing the central bank to trade government bonds, reaffirming a sentence from President Xi Jinping that ignited market speculation about a change of monetary strategy.
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