(Yicai) Nov. 17 -- China should issue new special treasury bonds to finance its urbanization drive, thereby bolstering domestic demand and enabling higher-quality, measurable progress on new-type urbanization, according to a prominent economist at Tsinghua University.

These special treasury bonds would channel funds directly to county-level governments to finance aspects of new-type urbanization such as infrastructure upgrades, expanded public services, and the integration of permanent residents into urban life, Prof. David Li, director of the Academic Center for Chinese Economic Practice and Thinking at the renowned university, said at a recent forum on the new urbanization.

One of the core economic development tasks of China’s 15th Five-Year Plan, which will cover next year through 2030, is to expand domestic demand and restore growth momentum, said Li, who sat on the Monetary Policy Committee of the People’s Bank of China for two years to March 2012. These efforts, he noted, will help stabilize employment and income expectations, with new-type urbanization serving as a key driver for boosting demand.

Li also pointed out that local governments, including county-level authorities, are finding it difficult to increase investment in urbanization, household registration reform, and public services due to heavy debt repayment obligations. Making rational use of treasury bonds as a modern public financial tool could help grassroots governments sidestep this constraint, he added.

“On the basis of a reasonable assessment of the central government’s financial net assets and national credit capacity, additional special treasury bonds should be issued to replace part of local governments’ debts, alleviating their fiscal pressure,” Li suggested.

After fiscal pressures are eased, Li further proposed breaking down the government’s urbanization goals into specific, quantifiable, and assessable key performance indicators and incorporating them into official performance evaluations. This would help to incentivise county-level governments to improve local public services and fulfil urbanization goals, he added.

The finance ministry first issued special treasury bonds during the 1998 Asian financial crisis to help large state-owned banks replenish capital. In 2007, it issued such bonds to buy foreign exchange reserves from the PBOC, using the assets to fund the China Investment Corporation, a sovereign wealth fund.

Special treasury bond issuance has reached CNY1.3 trillion (USD181.8 billion) this year. Since 2020, the issuance frequency has increased, with funds earmarked for pandemic relief, disaster recovery, major infrastructure, corporate equipment upgrades, and consumer goods trade-ins. 

Editors: Tang Shihua, Emmi Laine