(Yicai) Aug. 8 -- China’s local governments issued approximately CNY6.7 trillion (USD940 billion) in bonds in the first seven months, a jump of 60 percent from the year before, as they step up efforts to stabilize the economy and guard against risks. Monthly bond sales in both June and July topped CNY1 trillion.

More than half of the new bonds went toward repaying old debt, while close to 50 percent was allocated to major infrastructure projects. Of the CNY6.7 trillion raised, just over half at CNY3.4 trillion were refinancing bonds, up 65 percent year-on-year, according to data from the Ministry of Finance and market institutions. The remainder were new bonds, an increase of 55 percent.

Refinancing bonds saw sharp growth in the seven months ended July 31, driven by the rapid expansion of debt swaps and the practice of rolling over the principal of maturing government debt, in other words borrowing new funds to pay off old debt.

Last year, to reduce hidden local government debt risks, the central government rolled out a CNY10 trillion (USD1.4 trillion) debt swap plan, with CNY6 trillion coming from refinancing bonds. This year’s quota is CNY2 trillion and as of the end of July, nearly CNY1.9 trillion had already been issued.

By swapping out hidden debt, local governments have cut their average borrowing costs by more than 2.5 percentage points, Minister of Finance Lan Fo’an said recently. This has significantly alleviated their repayment pressures and freed up fiscal resources, allowing more funds to be directed toward development priorities and public services.

New bonds are generally used for major public welfare projects to bolster the economy. Of the CNY3.3 trillion (USD459.4 billion) in new bonds issued in the first seven months, CNY2.8 trillion were special-purpose bonds, a jump of 57 percent year-on-year. This accounts for over 60 percent of this year’s CNY4.4 trillion special bond quota.

Special-purpose bonds are mainly used to fund construction projects. Of the nearly CNY2 trillion in special bonds for projects issued in the first seven months, about 26.4 percent was directed toward municipal and industrial park infrastructure, 17.6 percent toward transportation infrastructure and 13 percent toward land reserves, according to data from Enterprise Early Warning.

Experts previously interviewed by Yicai generally predicted that local governments would finish issuing nearly all CNY4.4 trillion of the special-purpose bonds by the end of October and would accelerate the utilization of these funds.

China’s local government debt stood at CNY52 trillion (USD7.2 trillion) at the end of June, which is well below the debt ceiling of CNY58 trillion, according to the Ministry of Finance. The average maturity of local government bonds was just over 10 years, with an average interest rate of 2.93 percent.

Editor: Kim Taylor