(Yicai) March 5 -- China will keep the issuance quota for local government special bonds unchanged at a high level of CNY4.4 trillion (USD638.3 billion) this year to support infrastructure investment, replace hidden local debt, and pay arrears owed to companies.

Premier Li Qiang announced the plan in the government work report delivered at the opening meeting of the fourth session of the 14th National People’s Congress today. The quota is the same as last year’s level, reflecting Beijing’s continued reliance on special bonds as a key fiscal policy tool to stabilize investment and support economic growth.

Local government special bonds were originally introduced as debt issued by local authorities to fund public welfare projects that generate income, with repayments sourced from government funds or project-related revenue. In recent years, however, some newly issued special bond funds have also been approved for use in replacing local governments’ implicit debts and settling payments owed to enterprises. These bonds are managed under the government funds budget and are not included in the fiscal deficit.

To mitigate risks from economic slowdown, the issuance quota for special bonds has become an important indicator of proactive fiscal policy intensity. China first allowed local governments to issue special bonds in 2015 with a quota of CNY100 billion (USD14.5 billion). The quota has since risen rapidly, reaching CNY4.4 trillion last year and remaining at that level this year.

To enable infrastructure projects financed by special bonds to start earlier, China’s finance ministry allocated part of this year’s quota to local governments in advance by the end of last year, allowing issuance to begin in early January. As of the end of February, local governments had issued CNY2.28 trillion worth of special bonds, about 22 percent more than in the same period last year.

Local governments issued about CNY10.31 trillion (USD1.49 trillion) of bonds in total last year, including roughly CNY5.38 trillion of newly added bonds and CNY4.93 trillion of refinancing bonds used to repay maturing debt, according to data released by the finance ministry early last month.

Of the newly added bonds, CNY4.61 trillion were special bonds and CNY774 billion were general bonds. Because local governments also used unused quotas accumulated from previous years, the actual amount of special bonds issued last year exceeded the annual quota by CNY210 billion.

Local government general bonds are issued to fund non-profit public welfare projects and are repaid using revenue from the general public budget. These bonds are incorporated into the general public budget management framework.

China’s local government debt balance stood at about CNY54.82 trillion at the end of last year, an increase of about CNY7.29 trillion, or 15 percent, from a year earlier. However, this remained below the ceiling of about CNY57.99 trillion approved by the National People’s Congress, meaning local government debt risks were generally controllable, according to finance ministry data.

Editors: Tang Shihua, Emmi Laine