China’s Local Govts' Issue USD241.2 Billion of New Bonds in First Quarter
Chen Yikan
DATE:  Apr 27 2023
/ SOURCE:  Yicai
China’s Local Govts' Issue USD241.2 Billion of New Bonds in First Quarter China’s Local Govts' Issue USD241.2 Billion of New Bonds in First Quarter

(Yicai Global) April 27 -- Local governments in China issued around CNY1.7 trillion (USD241.2 billion) of new bonds in the first three months of this year.

Another CNY2.9 trillion of new bonds can be issued by local governments for the rest of this year to raise funds for major projects under the quota unveiled earlier, the finance ministry said yesterday.

China's economy had a good start in the first quarter thanks to local government bond offerings, especially of special-purpose bonds, experts in the field told Yicai Global. This can be seen from the rapid growth of investment in infrastructure, they pointed out.

The country's gross domestic product rose 4.5 percent in the three months ended March 31 from a year earlier, while investment in infrastructure jumped 8.8 percent, according to data from the National Bureau of Statistics.

Proactive fiscal policies are still needed in the future because the economic recovery is not solid enough, requiring greater efficient use of the funds raised from special-purpose bonds to boost social investment and stabilize the economy, the experts noted.

Local government fiscal revenue growth was slow last quarter due to pressures on the economy and a sluggish land market. Revenue from local government sales of the rights to use state-owned land plunged 27 percent in the first three months from a year ago, after falling 17.8 percent last year.

Local fiscal policies strongly depend on bond issuance, and provinces with developed economies, such as Shandong and Guangdong, are speeding up the pace of bond offerings, data showed. Five other provinces, including Sichuan, Hebei, and Fujian, issued more than CNY100 billion (USD14.4 billion) of new bonds in the first quarter.

Outstanding local government debt has been rising fast in recent years because of the surge in bond issuance. The risk around special-purpose bonds has raised concerns as the revenue from transferring land use rights, a key source of income to pay back such bonds, has declined. 

The repayment coverage ratio for matured special-purpose bonds stood at 5.1 as of the end of 2021, indicating a high debt-paying ability, according to information from the finance ministry.

The authorities have implemented stricter regulations on special-purpose bonds this year, such as stricter checks on project applications, sources at local fiscal agencies said. Some unqualified projects submitted by local governments were rejected, and because of that, the pass rate was low, they added.

The finance ministry will organize its nationwide supervisory arms to carry out frequent inspections of the use and management status of special-purpose bonds, it stressed.

Editor: Martin Kadiev

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Keywords:   Local Government Debt,China