(Yicai) May 7 — Under the guidance of the ‘early issuance, early utilization, and early effectiveness’ strategy, Chinese local governments have issued a record amount of bonds in the first four months of the year.
Some CNY3.92 trillion (USD576.3 billion) worth of local government bonds were issued in China in the four months ended April 30, up 11 percent from CNY3.54 trillion a year earlier, according to data compiled by Yicai.
“This reflects the more proactive fiscal policy taking effect early this year to counter the economic downward pressure and provide strong support for achieving stable economic growth,” Zhong Ninghua, professor at Tongji University’s School of Economics and Management, told Yicai. “The trend of early local government bond issuance is expected to continue and peak in the second quarter.”
The rapid issuance of local government bonds has a big impact on driving investment, said Wen Laicheng, professor at Central University of Finance and Economics. In the first quarter, government-led infrastructure investment increased 8.9 percent from a year earlier, reversing last year’s decline.
Of the CNY3.92 trillion local government bonds issued in the first four months, about CNY1.65 trillion or 42 percent of the total were new bonds, and CNY2.27 trillion or 58 percent were refinancing bonds, up 10 percent and 11 percent, respectively, from the same period last year.
About CNY1.33 trillion of the new bonds were new special bonds, up 12 percent in the period. Twenty-eight percent of them were allocated to municipal and industrial park infrastructure, 19 percent to transportation infrastructure, 13 percent to affordable housing projects, 12 percent to land reserves, 10 percent to social service projects, such as healthcare and education, and 7 percent to agricultural, forestry, and water conservancy projects.
There are two types of local government bonds: new bonds and refinancing bonds. New special bonds are the main category of new bonds, used to finance infrastructure, industrial, and livelihood projects. They are included in the management of government fund budgets, so they do not count towards the fiscal deficit. Refinancing bonds are used to repay the principal of maturing bonds.
The National People’s Congress held in March set the annual issuance quota for local government special bonds at CNY4.4 trillion, the same as last year.
Based on the allocation of local government bond funds in the first four months, infrastructure construction remains the primary investment target, Zhong noted, adding that the support for new infrastructure projects, such as local fifth-generation network base stations and computing power centers, is also increasing.
“Special bond funds have been used to support the renovation of urban villages and the acquisition of existing commercial housing in recent years,” Zhong said. “This can help revitalize existing assets, provide resources for affordable rental housing, and promote the transformation of housing supply towards a dual-track system of ‘market + guarantee,’ which is beneficial for stabilizing the real estate market.”
Moreover, special bond funds work in synergy with special treasury bonds and central budgetary investment funds, focusing on projects such as new urbanization, infrastructure for emerging industries, and the digital and intelligent transformation of traditional infrastructure, according to Zhong.
“These efforts aim to support the development of a modern industrial system, stabilize the real estate market, and fund livelihood protection projects,” he pointed out.
Editors: Tang Shihua, Futura Costaglione