China's Local Governments Have Issued USD163 Billion in Bonds This Year
Chen Yikan
DATE:  Mar 26 2019
/ SOURCE:  yicai
China's Local Governments Have Issued USD163 Billion in Bonds This Year China's Local Governments Have Issued USD163 Billion in Bonds This Year

(Yicai Global) March 26 -- Local governments in China have issued nearly CNY1.1 trillion (USD163 billion) worth of bonds so far this year and are on track to quintuple last year's first-quarter total as they look to stabilize investment and expand domestic demand.

Changjiang Securities reckons that figure -- accurate up to March 24 -- could reach CNY1.4 trillion by the end of the month, according to a research report led by Zhao Wei, chief macro bond researcher at the firm.

Around CNY200 billion (USD30 billion) worth of bonds have or are due to expire this quarter, giving a net issuance of about CNY1.2 trillion. In the same period a year earlier, local governments only issued enough bonds to cover those that matured.

Authorities have a budget of just under CNY3.1 trillion for the entire year and will likely have used that up by the end of the third quarter, per Ministry of Finance plans. Most of the money will go toward infrastructure and livelihood projects, such as land reserves, shantytown development, transit, water conservancy and environmental protection, and schools and hospitals.

Securing Capital

By issuing bonds earlier, local governments will be able to guarantee the capital needs of key projects are met and ensure a stable economy and investments, Shanghai University of Finance and Economics' Prof. Zheng Chunrong told Yicai Global.

New local government bonds fall under two categories, general and special bills, he said, adding that both are for welfare projects but the latter offers particular benefits over general bonds.

The cap on general bond issuance for 2018 rose 7.5 percent to CNY930 billion of the CNY3.1 trillion, Zheng continued, saying that the special bill limit rose nearly a quarter to a five-year high of CNY2.15 billion.

Strong Signal

An arrangement like this adapts to the spending needs of all parties, but also signals a powerful and proactive fiscal policy which will better guide business expectations and enhance market confidence, he added.

Local governments typically issue the bulk of bonds in the second half of the year as the National People's Congress, China's legislature, determines how much they can issue at an annual meeting typically held in March.

That changed this year as the NPC's Standing Committee granted the cabinet, or State Council, permission to publish plans for local government bonds at the end of last year, enabling local governments to raise money as early as possible.

Editor: James Boynton

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Keywords:   Local Government Debt