Why China Uses ‘Special Debt’ to Help Economy Recover

With the virus pandemic pummeling China’s economy, the government plans to sell 1 trillion yuan ($140 billion) of special government bonds to help fund public health and Covid-19 recovery efforts -- without inflating the budget deficit. The rarely used financing tool was previously employed during the Asian financial crisis in the 1990s and to help seed the sovereign wealth fund in 2007.

Unlike regular government debt, special bonds raise cash for a certain policy or to help solve a particular problem. They are not part of China’s official budget and thus not included in deficit calculations. At more than 3.6% of gross domestic product, the 2020 deficit target is already higher than in recent years. A senior official said increasing debt levels to help the economy are feasible and necessary. The central government will cover interest payments and 30% of the principal.