MNI: China To Front Load CNY2 Trillion Of 2026 Bonds

Beijing is likely to front-load more than CNY2 trillion of next year’s local government bond quota soon to support the early launch of major construction projects under the 15th Five-Year Plan, advisors told MNI, noting the recent decline in fixed-asset investment is temporary and unlikely to derail the economy from meeting its 5% growth target.

“The amount of local debt allocated in advance this year will be no less than that of last year,” said Gong Liutang, director of the Institute for Advanced Study at Wuhan University, expecting such an announcement after the Central Economic Work Conference in mid-December. 

In 2024, Beijing front-loaded CNY2.77 trillion in local bonds, a typical practice capped at no more than 60% of the new local government debt limit for the year. This year’s amount is expected to range between CNY2.08 trillion and CNY3.12 trillion, according to Lu Donghong, associate research fellow at the Chongyang Institute for Financial Studies at Renmin University.

As Beijing likely targets “around 5%” growth again in 2026, new government debt will likely rise from 2025’s CNY11.86 trillion to around CNY12 trillion, Gong estimated, potentially with a deficit-to-GDP ratio of 3.8-4%, CNY1.3-1.5 trillion in ultra-long-term special treasury bonds, and local government special bonds at least maintaining 2025’s CNY4.4 trillion level. Fiscal expansion will be supported by stronger fiscal revenue, which rose 3.2% y/y in October, driven by an 8.6% gain in tax revenue, he added. (See MNI: China To Maintain Modest Debt Expansion Over Next 5 Years)

INVESTMENT SLOWDOWN

With more than 100 major projects planned for the next five years set to launch, fixed-asset investment – which fell 1.7% y/y for January-October, following a 0.5% decline – should stabilise next year, a think tank researcher said, noting the short-term dip partly reflected project scheduling issues as the 14th Five-Year Plan concluded.

In addition to ongoing weakness in property investment, which accounts for over 20% of fixed-asset investment, the government’s “anti-involution” campaign against price wars, has also dampened manufacturing expansion. Coupled with expected export weakness, the researcher said infrastructure investment will remain crucial for short-term growth, calling for larger-scale fiscal expansion in 2026, including additional policy-based financial instruments beyond this year’s CNY500 billion.

ECONOMIC RESTRUCTURING

Lu said the investment slowdown reflects the interplay of short-term fluctuations and medium- to long-term structural transformation. Despite a 14.7% y/y drop in property investment for January-October, investment in new growth sectors – equipment, tools, and high-tech services – rose 13% and 5.5%, respectively.

“Investment growth may remain under pressure over the next 1-2 years, but the drag on the overall economy will be manageable as long as a balance is maintained between a soft landing for real estate and steady expansion in emerging sectors,” Lu said. (See MNI: China's Real Estate To Stabilise Over Next Five Years)

Gong noted that investment’s contribution to 2025 GDP growth could fall below 15% from 17.5% in the first three quarters, but this is unlikely to prevent the economy from reaching its 5% growth target, given a strong 5.2% growth pace until Q3 this year.