(Yicai Global) Dec. 2 -- Local governments in China issued a record CNY7.28 trillion (USD1.03 trillion) of municipal bonds in January to November this year to help close the gap between their income and expenditure and expand investment to steady economic growth.

In the 11 months ended Nov. 30, the governments of the 31 provincial-level regions in the Chinese mainland issued bonds worth CNY100 billion (USD14.2 billion) more than in the same period a year ago, according to data in the public domain.

Some intend to sell more bonds before the end of the year, with four planning to issue about CNY67 billion (USD9.5 billion) next month, according to figures from Zhongtai Securities' research institute.

China’s municipal bonds can be divided into two categories, depending on their purpose. New bonds are mostly used to build key projects, such as infrastructure construction, while refinancing bonds are used to pay maturing debt.

Local governments sold about CNY4.75 trillion of new bonds in the 11-month period, up 11.5 percent from a year earlier. Refinancing bond issuance fell 13.4 percent to CNY2.53 trillion.

The sharp jump in new bonds was mainly due to a significant increase in new special bonds, those usually issued to raise funds for infrastructure of major transport, utilities, and industrial park projects, which have a crucial role to play in stabilizing investment and growth.

New special bonds issued by local governments totaled CNY4.03 trillion in the period, marking the first time that the figure exceeded CNY4 trillion in a single year.

China's central government allowed local administrations to issue CNY500 billion of their unused special bonds quota accumulated over the years on top of this year's CNY3.65 trillion allocation to expand effective investment and further steady economic growth.

Though refinancing bond issuance declined this year because of last year's high base, it remained at a high level as a result of the high volume of municipal bonds falling due.

New refinancing bonds have helped ease the fiscal income and repayment pressures that local governments face amid the pandemic, big tax cuts and rebates, and subdued municipal land use auctions.

Local governments repaid CNY2.33 trillion of debt due in the first 10 months of the year, CNY1.97 trillion of which came from funds raised through refinancing bonds, the latest finance ministry data showed.

But increased municipal bond issuance has resulted in greater local government debt. As of the end of October, outstanding local government debt reached CNY35.17 trillion (USD4.98 trillion), according to finance ministry figures, still within the CNY37.65 trillion ceiling approved by the National People's Congress.

Local government liabilities have piled up quickly since 2020, with the debt ratio having reached 116 percent last year, Everbright Securities said in a research note. That is likely to top the 120 percent risk threshold level this year, with limited space for further increases, it said.

Editors: Tang Shihua, Futura Costaglione