(Yicai) Oct. 12 -- China should issue more treasury bonds to raise its deficit-to-gross domestic product ratio for this year and ultimately support the economic recovery and address the challenges of local financing, industry insiders told Yicai.

China needs to raise its debt-to-gross domestic product ratio, Yu Yongding, a member of the Academic Department of the Chinese Academy of Social Sciences, told Yicai. The source of funds is not a big problem, as China has a large room to issue more treasury bonds, Yu added.

It is possible to issue more treasury bonds, an investment banker estimated based on research on local governments. It is necessary to adjust China’s debt structure, the banker noted, adding that the central government is more suitable than local governments to increase leverage.

The difference between China’s local government debt ceiling and the local government debt balance is less than CNY2.6 trillion (USD356.1 billion), according to data from Wind Information.

However, local governments can use some but not all of the remaining quota for special refinancing bonds, the insiders noted. Therefore, issuing treasury bonds is the key to stabilizing growth, one of the insiders said regarding the means of fiscal expansion.

Market participants do expect an additional issuance of treasury bonds. According to rumors, China will issue at least CNY1 trillion in debts for infrastructure construction, potentially pushing this year’s budget deficit well above the 3 percent ceiling set in March.

However, the rumored treasury bonds may not be special treasury bonds but just long-term construction treasury bonds, which fall into the central finance category, some brokers and investment bankers believe.

In addition to issuing treasury bonds, China may take other actions, such as issuing special financial bonds and launching a large-scale debt restructuring program, Zhu Haibin, chief China economist at J.P. Morgan, told Yicai.

To mitigate local governments’ hidden debt risks, China restarted issuing special refinancing bonds late last month. So far, provincial-level regions Inner Mongolia Autonomous Region, Guangxi Zhuang Autonomous Region, Chongqing, Tianjin, Liaoning, and Yunnan have announced plans to issue special refinancing bonds for a total scale of CNY319.7 billion (USD43.8 billion) to repay existing debt.

Editor: Futura Costaglione