(Yicai) Oct. 27 -- Chinese urban construction investment bonds have regained the attention of Chinese investors after the central government implemented a package to ease the debt burden of local governments.

The CNY2.5 billion (USD341.7 million) wealth management product targeting fixed-income instruments, such as urban construction investment bonds, issued on Oct. 25 by the Chinese joint venture of BNP Paribas Asset Management sold out in 30 hours. This indicates that Chinese investors are again confident in such types of bonds.

China’s central government put forward a plan to ease the debt burden of local governments that includes approving the issuance of special refinancing bonds to pay off their off-balance-sheet debt, such as urban construction investment bonds issued by local government-owned companies and guarantee by the government, an investment manager at BNP Paribas ABC Wealth Management told Yicai. This will help mitigate local governments’ debt risks and attract financial institutions to acquire more local debt-related assets, he added.

The proceeds of special refinancing bonds are mainly used to replace high-cost and short-maturity debts, the investment manager explained to Yicai. By allowing local governments with high debt risks to issue more such bonds, the central government is significantly reducing expectations that local governments’ debt risk can be exposed in the short term, thus helping urban construction investment bonds regain investors’ favor, he noted.

The yield spread between urban construction investment bonds and treasury bonds has begun to narrow despite the recent rise in overall bond yields, Yicai noticed.

Chinese local governments have issued over CNY900 billion (USD123 billion) worth of special refinancing bonds since Inner Mongolia Autonomous Region issued the first batch of CNY66.3 billion (USD9.1 billion) such bonds to repay its debt, including their off-balance-sheet debts taken by their financing vehicles, which usually are the issuers of urban construction investment bonds. 

Editors: Tang Shihua, Futura Costaglione