China to earmark $41 billion in bond funds to bolster recovery

BEIJING (Reuters) -China will allocate 300 billion yuan ($41.40 billion) in ultra-long treasury bonds to support a programme of equipment upgrades and consumer goods trade-ins, the government said on Thursday, in the latest step to spur an economic recovery.

About half the planned bond funds will be used for supporting consumer goods trade-ins, according to a notice issued by the National Development and Reform Commission (NDRC), the state planner, and the finance ministry.

China's consumption faces "relatively big pressures" in the first half of this year, Xu Xingfeng, an official at consumption department of the commerce ministry, said at a media briefing.

"If we can stabilise the 'four guardians' of auto, home appliances, household products and catering, we can stabilise consumption," Xu said.

According to the notice China will raise subsidies for qualified buyers of new energy passenger cars to 15,000-20,000 yuan each. Buyers of some home appliances including televisions, air conditioners and computers will get subsidies equivalent to 15%-20% of their sales prices, but the subsidy for each item will not exceed 2,000 yuan.

"We believe this policy will play a positive role to drive up the consumption market in the second half of this year," Zhao Chenxin, deputy head of the National Development and Reform Commission (NDRC), told the media briefing on Thursday.

All of the 300 billion yuan will be disbursed by the end of August, Zhao said.

Retail sales, a gauge of consumption, grew only 2.0% in June, the weakest in 18 months, as residents become more cautious due to falling home prices, job insecurity and high debt.

That helped drag growth of the world's second-largest economy to 4.7% in the second quarter from the 5.3% pace in the first three months, the weakest since the first quarter of 2023.

The government has set a growth target of around 5% for 2024.

"Policymakers may allow some slowdown in the economy, but they could become worried if growth deviates too much from the target," Hwabao Trust economist Nie Wen said.

"The central government is giving the funds to cash-strapped local governments to enable them to subsidise consumers, which may help the trade-in scheme going forward."

China will lower project application requirements for using ultra-long special sovereign bonds to support equipment upgrades of small and medium-sized firms, according to the notice.

Authorities will bar local governments from using the bond funds to repay local debt and balance local budgets, it said.

The steps followed a pledge last week by China's cabinet to increase support for the programme which was aimed at spurring investment and consumption amid a shaky economic recovery.

($1 = 7.2465 Chinese yuan)

(Reporting by Liangping Gao, Ellen Zhang and Kevin Yao; Editing by Himani Sarkar and Christian Schmollinger and Miral Fahmy)