(Yicai Global) March 23 -- Central China’s Hubei Province is due to issue CNY25 billion (USD3.8 billion) of government bonds through a public tender on March 25. This will kick off this year’s new local government bond issuance in the country.

According to data from China’s Ministry of Finance, the cap on new local government bonds this year is expected to be CNY4.47 trillion (USD686.6 billion), CNY260 billion yuan less than the previous year at the peak of Covid-19 pandemic prevention and control. But the figure is still well above the CNY3.08 trillion in 2019.

The scale of new bonds issued by local governments has been reduced somewhat, and the issuance date has also been delayed to late March from January in the past two years, Wen Laicheng, a professor with Central University of Finance and Economics, told Yicai Global.

Ji Fuxing, a professor at the School of Economics of the University of the Chinese Academy of Social Sciences, also pointed out the bond issuance quota has been lowered slightly. And with no special anti-pandemic treasury bonds, the overall pace of new local bond issuance will be slower than in previous years.

As of January this year, the balance of local government debt had reached CNY26 trillion, Wen revealed. And, the local government debt ratio was close to the lower limit of the 100 percent international warning line at the end of last year.

Therefore, in order to prevent and control debt risk, the scale of local government borrowing in 2021 is slightly lower, he stated.

However, the scale of new bonds this year is still much higher than that of 2019, Wen added. This shows that the proactive fiscal policy has not made a sharp turn and has maintained a certain level of spending to support the economy within a reasonable range.

The new local government bonds will continue to focus on supporting local transportation infrastructure construction, agriculture, forestry and water conservancy projects, Ji claimed. They will also be used to support major national strategic projects, such as regional development, rural revitalization and carbon neutral projects.

In addition, the bonds can also be used to support local shantytown renovation projects. For example, nearly half of the funds raised in the CNY15-billion new special bonds issued by Hubei province this week will be used for shantytown renovation projects.

Unlike in previous years, this year’s budget report by the MOF calls for optimizing the term structure of special bond issuance by local governments.

The term of special local government bonds has been extended in recent years, mainly due to the relatively long operating period of some major projects, such as railway construction, Wen told Yicai Global. Extending the term can better match the construction time of a project and alleviate the debt repayment pressure on local governments.

For example, among Hubei’s new special bonds, except for the special bonds for shantytown renovation with a term of five or seven years, the remaining special bonds have a maturity of 10 to 30 years. Among them, the special bond for the new railway project from Jingmen to Jingzhou has a maturity of 30 years.

New local government bond issuance will peak in April, according to a report by the Huachuang Securities Research Institute. And the issuance is likely to continue until the end of the year due to the relatively even pace of issuance compared with previous years.

Editors: Tang Shihua, Peter Thomas