Bonds to help shan­ty­town bid

China Daily (Canada) - - VIEWS -

An­a­lysts see their is­suance as key means of fu­el­ing in­vest­ment and boost­ing growth (for the shan­ty­town ren­o­va­tion pro­gram) will not be re­duced, and these will be ac­com­pa­nied by an in­crease in shan­ty­town ren­o­va­tion-re­lated spe­cial lo­cal govern­ment bond is­suance,” said an ex­pert close to the Min­istry of Fi­nance.

Lo­cal gov­ern­ments’ shan­ty­town ren­o­va­tion tar­gets for 2019 should re­main within a rea­son­able level match­ing fis­cal ex­pen­di­ture, he said.

China’s shan­ty­town ren­o­va­tion pro­gram stepped up a gear in the past three years. It is aimed at im­prov­ing the liv­ing con­di­tions of low-in­come peo­ple, in­creas­ing do­mes­tic de­mand and fa­cil­i­tat­ing the na­tion’s ur­ban­iza­tion process.

Lo­cal gov­ern­ments started to is­sue spe­cial-pur­pose bonds for shan­ty­town ren­o­va­tion in June. By the end of the third quar­ter of this year, more than 165 bil­lion yuan ($23.8 bil­lion) had been raised us­ing this fi­nan­cial in­stru­ment, ac­cord­ing to China Cen­tral De­pos­i­tory & Clear­ing Co Ltd.

Gold­man Sachs econ­o­mist Song Yu also ex­pected lo­cal gov­ern­ments to in­crease the amount of spe­cial bonds tar­get­ing the pro­gram, along with a po­ten­tial in­crease in the pro­gram’s tar­get next year.

The re­cent pol­icy sig­nal is im­por­tant, as “shan­ty­town re­de­vel­op­ment is a key el­e­ment of do­mes­tic de­mand”, said Song.

Sup­port for the ren­o­va­tion pro­gram, along with the au­thor­i­ties’ re­cent moves on fis­cal and mone­tary fine-tun­ing, are be­ing read by the mar­ket as mea­sures to mit­i­gate do­mes­tic and ex­ter­nal eco­nomic growth head­winds.

The au­thor­i­ties an­nounced an al­most 750 bil­lion yuan cash in­jec­tion into the bank­ing sys­tem on Sun­day by low­er­ing the re­serve re­quire­ment ra­tio by 1 per­cent­age point, and Min­is­ter of Fi­nance Liu Kun also pledged to fur­ther re­duce taxes.

The govern­ment plans to re­de­velop 15 mil­lion homes by 2020. By the end of Septem­ber, around 92 per­cent of the an­nual ren­o­va­tion tar­get had been ac­com­plished, re­vamp­ing 5.34 mil­lion shan­ty­town homes, ac­cord­ing to of­fi­cial data.

The mar­ket has also been con­cerned since the end of last year that the govern­ment may tighten fi­nanc­ing re­lated to the pro­gram, in order to rein in fast ris­ing prop­erty prices, es­pe­cially in third and fourth-tier cities.

A state­ment is­sued af­ter the lat­est State Coun­cil ex­ec­u­tive meet­ing stressed that any ir­reg­u­lar bor­row­ing by lo­cal gov­ern­ments, un­der the name of shan­ty­town ren­o­va­tion, should be pro­hib­ited. It also called for re­mov­ing fa­vor­able poli­cies in the cash-set­tle­ment shan­ty­town ren­o­va­tion pro­gram for cities with low hous­ing in­ven­tory and high up­side pres­sures on hous­ing prices.

“Bei­jing is walk­ing a tightrope be­tween stim­u­lat­ing do­mes­tic de­mand and rein­ing in the prop­erty bub­ble and as­so­ci­ated fi­nan­cial risks,” said Lu Ting, No­mura Se­cu­ri­ties chief econ­o­mist in China.

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