China’s Ministry of Finance (MOF) has urged local governments in the country to submit how much debt they need to sell next year. Next year’s new special-purpose bonds will likely assigned in advance, as early as October this year. The move indicates the Chinese government’s urgent need to increase infrastructure investment through local government bond issuance amid mounting pressures from slowing economic growth and the escalation of trade friction with the US.
Special-purpose bonds are designated for infrastructure investment and are meant to be repaid from income generated by the projects invested in rather than from local budgets.
According to the data from the MOF, the special-purpose bonds amounted to RMB 2.15 trillion in 2019, increasing by RMB 0.8 trillion compared to 2018. As of the end of August, local governments have issued RMB 2.0 trillion special-purpose bonds, with RMB 1.6 trillion being used.
China’s State Council stated at an executive meeting on September 4 that the special-purpose bonds for 2019 should be issued by the end of September and will be put into use in projects by the end of October, to actively drive the expansion of investment and leverage private investments.
Some institutions forecast that the quotas for next year’s new special-purpose issued in advance in 2019 will likely amount to RMB 1.29 trillion ($0.18 trillion), based on the required percentage of 60 percent of RMB 2.15 trillion ($0.3 trillion) - the total of special-purpose bonds in 2019.
Xu Hongcai, deputy minister at the MOF, stated that the special-purpose bonds of 2020 issued in advance will be used in infrastructures construction - including railway, rail traffic and city parking etc., while projects in other areas that meet the requirements can also be supported if they are well prepared.