(Yicai) July 7 -- Chinese local governments have sold record-high CNY5.87 trillion (USD815.6 billion) of bonds in the first half of the year, given the mounting fiscal revenue and expenditure strains. Despite that, the amount of newly added bonds declined in the period.

China’s local government bond issuance rose about 7 percent in the six months ended June 30 from a year earlier, according to data released by the Ministry of Finance last week.

The record issuance of local government bonds in the first half is mainly because of a peak maturity wave of outstanding local government bonds, which drove the surge in refinancing bond issuance, Yuan Haixia, dean of the China Chengxin International Credit Rating Research Institute, told Yicai.

Of the CNY5.87 trillion issued between January and June, about CNY3.42 trillion were refinancing bonds, up 19 percent in the period, and CNY2.45 trillion were new bonds, down 6 percent.

This was the first time since China established the local government bonds mechanism in 2015 and divided them into new bonds for project investment and refinancing bonds for debt repayment that the amount of new bonds declined year-on-year in the first half.

The first decline in the issuance of new bonds reflects an overall slower pace of selling new special-purpose bonds for new investment projects, which has restrained growth in infrastructure investment in the first half to a certain extent, Yuan said.

The CCXI Research Institute estimated that new special-purpose bonds to fund infrastructure projects only amounted to CNY1.45 trillion in the period, down by about CNY50 billion (USD6.9 billion) from the same period last year, suggesting that local government bonds have yet to fully unleash their supporting role in infrastructure investment.

The slower issuance of new bonds in the first half may be because of the adjusted local bond issuance schedule after strong first-quarter economic readings, a limited pool of desirable local investment projects, and tightened approval criteria for special-purpose bond projects, Feng Lin, executive director of research and development at Oriental Jincheng International Credit Rating, told Yicai.

“It is advised to accelerate the issuance and utilization of local government bonds in the second half to deliver actual spending and physical workload as soon as possible,” Yuan noted. “Funds should be allocated and deployed promptly to fully leverage local government bonds, especially special-purpose ones, to stabilize growth in infrastructure construction, shore up investment, and expand domestic demand.”

Given the mounting downward economic pressure since the second quarter and the relatively slow bond issuance in the first half, the issuance pace of local government new special-purpose bonds is expected to accelerate in the third quarter, Feng predicted.

Editors: Tang Shihua, Futura Costaglione