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China's 'virus bonds' treat the wrong symptoms

New fundraising instrument for combating outbreak effects is being used largely for debt rollovers

The first Chinese company to issue an epidemic prevention and control bond says it will use the proceeds to "stock up on vegetables, meat and proteins and other livelihood necessities for sales."   © Reuters

TOKYO -- Chinese companies are flocking to newly sanctioned "virus bonds," whose purpose is ostensibly to bankroll expenditures related to the coronavirus outbreak and cover emergency financing needs. But just a week after the first issuance, it is becoming clear that companies are using the new funding instrument primarily to roll over old debts -- another sign that deleveraging in China has taken a back seat to spurring growth.

Officially known as "epidemic prevention and control bonds," the funding instrument was part of a lengthy financial policy package unveiled on Jan. 31 by five central government institutions, including the People's Bank of China, the Finance Ministry, and securities and banking regulators. The authorities pledged to establish a "green channel" that would fast-track any bond issuances related to the virus.

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