China's decision to issue additional sovereign bonds will help support the rebuilding of disaster-hit areas and raise the country's disaster relief capabilities, said the Ministry of Finance on Wednesday.

Chinese authorities announced late Tuesday to issue an additional one trillion yuan (about $136.8 billion) in sovereign bonds in the fourth quarter of 2023, expanding the budgeted fiscal deficit rates to around 3.8 percent for the year, up from three percent.

The funds will be distributed to local governments to support national disaster prevention and recovery, according to the finance ministry.

Around 500 billion yuan is planned to be utilized within the year, while the remaining half trillion yuan will be used next year.

The issuance of the bonds is expected to bolster GDP growth in the fourth quarter and next year, CITIC Securities said in a research report.

It estimates that the year-on-year growth rate of nominal GDP in the fourth quarter will increase by 1.42 percentage points, while the remaining 500 billion yuan that is expected to be put into use next year will drive the nominal GDP growth rate for next year to increase by 0.37 percentage points.

The additional sovereign bonds send a signal of proactive fiscal policy efforts to the market, which is expected to build up market confidence, according to CITIC. Chinese stocks closed higher on Wednesday, with the Shanghai Composite Index up 0.4 percent, while the Shenzhen Component Index was up 0.47 percent.

According to the finance ministry, the funds raised will be mostly used in eight areas including projects for post-disaster reconstruction, flood prevention and management, and projects to enhance natural disaster emergency response capacity.

Luo Guosan, director of the Department of Fixed Asset Investment at the National Development and Reform Commission, said on Wednesday that the additional sovereign bonds will give construction of flood prevention and disaster reduction projects a top priority, in a bid to further upgrade the country’s flood prevention capabilities.

(With input from Xinhua)