Toll bonds to help fund road net­works get green light

China Daily (Hong Kong) - - BUSINESS - By CAI XIAO caix­iao@chi­nadaily.com.cn

Bei­jing’s ap­proval, al­low­ing lo­cal gov­ern­ments to is­sue toll road spe­cial bonds, was wel­comed by an­a­lysts on Thurs­day, who said it would help fund ma­jor road net­work con­struc­tion in the cen­tral and west­ern re­gions and lower liq­uid­ity risks.

Their re­marks fol­lowed the is­su­ing of guide­lines on the toll road spe­cial bonds on Wed­nes­day by the min­istries of fi­nance and trans­port, which said provin­cial­level gov­ern­ments could is­sue the pa­per within the cen­tral gov­ern-

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ment’s ap­proved an­nual quo­tas.

Fund­ing from the bond is­suance must be used to build gov­ern­ment-op­er­ated toll roads.

“It is im­por­tant for lo­cal gov­ern­ments to is­sue toll road spe­cial bonds, as it is a main fi­nan­cial chan­nel for them to con­struct toll roads and guar­an­tee that China’s road net­work goal is suc­cess­fully achieved,” said Zhao Quan­hou from the Min­istry of Fi­nance’s Re­search In­sti­tute for Fis­cal Science.

Na­tional road net­work plans have tar­geted ex­press­ways, a ma­jor type of toll road, run­ning 118,000 kilo­me­ters by 2030. The coun­try’s ex­press­ways cov­ered 99,200 kilo­me­ters by the end of 2016, ac­count­ing for 84 per­cent of the goal, with the re­main­ing work mostly to be done in cen­tral and west­ern re­gions.

Zhao said with their smaller pop­u­la­tions and road traf­fic, it is more dif­fi­cult for cen­tral and west­ern re­gions to raise funds and con­struct toll roads, so the spe­cial bonds could be a vi­tal new fi­nanc­ing chan­nel.

“With more in­dus­tries trans­fer­ring to these re­gions, I’m con­fi­dent in their eco­nomic de­vel­op­ment and the in­vest­ment re­turns from toll roads there in the medium and long-term,” Zhao said.

Zhao said the risks for the spe­cial bonds were low as lo­cal gov­ern­ments can use the in­come stream from the road tolls, as well as earn­ings from other sources in­clud­ing road­side ad­ver­tis­ing, to pay down debt. Ad­di­tion­ally, there was strong fi­nan­cial sup­port from the cen­tral gov­ern­ment.

JZ Se­cu­ri­ties econ­o­mist Deng Haiqing said the ini­tia­tive could reg­u­late lo­cal gov­ern­ment debt risks in the trans­port sec­tor.

“Toll road spe­cial bonds is­sued by lo­cal gov­ern­ments can have lower fi­nanc­ing costs and longer ma­tur­ing terms than bank loans, which largely de­crease the liq­uid­ity risk of lo­cal gov­ern­ments,” said Deng.

Toll roads stacked up a debt pile of 4.86 tril­lion yuan ($717 bil­lion) at the end of 2016, with more than 80 per­cent of their an­nual in­come last year go­ing to pay off debt and in­ter­est.

Lo­cal gov­ern­ments in China used to rely on bank loans to con­struct toll roads, but now that fund­ing route has been blocked.

Zhao added that is­su­ing toll road spe­cial bonds was part of a wider move to have stan­dard­ized man­age­ment of lo­cal gov­ern­ment spe­cial bonds.

China’s newly re­vised Bud­get Law stip­u­lates that lo­cal gov­ern­ment can is­sue bonds — gen­eral bonds and spe­cial bonds — through a na­tional quota-based mech­a­nism, but more de­tailed man­age­ment should be im­proved.

An­a­lysts said the guide­lines on toll road spe­cial bonds on Wed­nes­day — and an­other guide­line on land re­serve spe­cial bonds an­nounced in June — were the lat­est moves to­ward stan­dard­ized man­age­ment of lo­cal gov­ern­ment spe­cial bonds.

Xin­hua con­trib­uted to this story.

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