(Yicai Global) Aug. 16 -- In order to maximize the use of this year’s quota of special bonds, which are issued to fund specific projects, seventeen Chinese provinces and cities have adjusted their purpose to finance different projects so as to avoid having the money lying idle should their target project be slow in getting off the ground, debt experts told Yicai Global.

The country’s cabinet has requested that this year’s quota of special bonds, amounting to CNY3.4 trillion (USD510 billion), be used up by the end of this month. Should there be a delay in getting a project started, the Ministry of Finance is now allowing these funds to be reallocated to other projects in order to boost investment and economic growth.

As a result, in a rarely seen turn of events, a number of new projects announced as recently as last month are being funded. Northwestern Gansu province, eastern Anhui province, southwestern Sichuan province and the city of Ningbo in southeastern Zhejiang province are not only financing projects issued in previous years, but also those that started this year.

Ningbo, for instance, is redirecting some of its special debt into five projects that were declared on June 30. It is using CNY2.7 billion (USD398 million) from the CNY13.7 billion (USD2 billion) allocated for a green petrochemical project to finance the building of the city’s number 7 subway line.

The early issuance of special debt and the need to use it up by month end are putting great pressure on local governments which need to quickly dispense of the funds and accelerate projects’ progress, Ji Fuxing, professor at the Chinese Academy of Social Sciences, told Yicai Global.

The scale of new special bonds has climbed rapidly in recent years to hedge against a cooling economy, and has been set at more than CNY3 trillion (USD442 billion) a year since 2020. The funds are used to support a number of big projects, with repayment from income after the project is completed. They play an important role in stabilizing the economy.

“However, no adjustments should be the norm and adjustments the exception,” Ji said.

"If the use of special bonds is adjusted frequently and on a large scale it shows that the preparation work for the original project was not solid,” Ji said. “We should help local governments improve their project portfolio, and be more careful with bond issuance audits. We can moderately cut next year's funds to force local governments to strengthen prep work and improve the quality of projects," he added.

Editor: Kim Taylor