China’s stimulus and the bond market

CHINA ADVISORY - Report 16 Feb 2021 by Andrew Collier

What is the state of China’s stimulus programs in 2021 and can it be sustained? If the consumer sector fails to pick up speed – as is currently the case, particularly in services – how will China generate growth? The bond market has been an important source of credit, with a 13 percent rise in outstanding bonds in January 2021. The China Development Bank, local government financing vehicles, and local governments all have a substantial amount of outstanding bonds. While bank loans remain the largest source of credit, bonds are rapidly catching up. The shift from bank loans (many issued by state banks) to the bond market will have an impact on the use of credit as the state-led sector is not leading the credit pool as much as in the past.

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