(Yicai) Sept. 4 -- Chinese local governments have issued CNY1.19 trillion (USD177.2 billion) worth of bonds in August, setting a new monthly high for this year, as the sales pace accelerates.

Local government bond issuance rose 1.6 percent to CNY7.8 trillion in the first eight months of the year from a year earlier, according to data from enterprise risk monitoring and warning platform Qiye Yujingtong. Of that, about CNY3.5 trillion were new bonds, down 10 percent, and around CNY4.3 trillion were refinancing bonds, up 13 percent.

About CNY2.9 trillion of the new notes were new special bonds, with around CNY2 trillion of the proceeds going toward project construction, and the remainder mainly used to replace existing implicit debts, settle overdue corporate payments, and support existing private-public partnership projects, data from Qiye Yujingtong also showed.

There are two types of local government bonds: new and refinancing. New special bonds are the main category of new bonds, with the funds raised mainly used for infrastructure, industrial, and public welfare projects. They are included in government fund budgets, so they do not count towards fiscal deficits. Refinancing bonds are used to repay the principal of maturing bonds.

The surge in refinancing bond issuance in the first eight months was mainly due to the increase in maturing debt scale requiring refinancing, but it was also related to the accelerated pace of resolving implicit debts in various regions, financial and tax experts told Yicai. By replacing existing implicit debt with refinancing bonds, the debt can be extended, and the interest burden eased, given the current low-interest environment, the experts explained.

Of the CNY4.3 trillion refinancing bonds issued from January to August, about CNY1.84 trillion or 43 percent were used to replace existing implicit debt, according to Qiye Yujingtong data.

China’s comprehensive debt resolution policy implemented in 2024 has achieved positive results. In the past two years, local governments’ implicit debt more than halved to CNY6.5 trillion from CNY14.3 trillion (USD2.1 trillion), which greatly reduced their pressure to repay principal and interest, according to a report submitted by the State Council to the Standing Committee of the National People’s Congress for review on Aug. 25.

As of June 30, China’s local government debt balance was about CNY58.77 trillion, with safe and controllable risks, according to the Ministry of Finance.

Editors: Tang Shihua, Futura Costaglione