Pi­lots kick off for in­di­vid­u­als to buy lo­cal gov­ern­ment bonds

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

Chi­nese main­land stock ex­changes are car­ry­ing out tri­als to al­low in­di­vid­u­als to buy lo­cal gov­ern­ment bonds, in a move aimed at de­creas­ing fi­nanc­ing costs and im­prov­ing liq­uid­ity.

The Min­istry of Fi­nance has given the Shen­zhen Stock Ex­change ap­proval to is­sue lo­cal gov­ern­ment bonds through a par­tic­u­lar bond is­suance sys­tem and in­di­vid­ual in­vestors can pur­chase these bonds, the ex­change said on Wed­nes­day.

Ac­cord­ing to the bourse, Sichuan prov­ince will be the first to is­sue lo­cal gov­ern­ment bonds to­tal­ing 30 bil­lion yuan ($4.4 bil­lion) on Aug 1, and 12 se­cu­ri­ties firms will be un­der­writ­ers.

In­di­vid­ual and in­sti­tu­tional in­vestors can sub­scribe dur­ing the un­der­writ­ers’ dis­tri­bu­tion pe­riod, or buy them af­ter the bonds go public.

“We are pro­mot­ing in­di­vid­ual in­vestors to buy the bonds both on­line and off­line, to im­prove the liq­uid­ity of lo­cal gov­ern­ment bonds in the sec­ondary mar­ket,” the Shen­zhen Stock Ex­change state­ment said.

Shang­hai Stock Ex­change got ap­proval ear­lier in July for the bond pi­lot. On July 6, Zhe­jiang prov­ince and the In­ner Mon­go­lia au­ton­o­mous re­gion suc­cess­fully is­sued lo­cal gov- ern­ment bonds on the stock ex­change.

On July 7, 638 in­di­vid­ual in­vestors in Huarong Se­cu­ri­ties bought the pa­per, to­tal­ing 10 mil­lion yuan, on­line. CITIC Se­cu­ri­ties and Haitong Se­cu­ri­ties each sold the 10 mil­lion yuan in bonds to in­di­vid­ual in­vestors.

Shang­hai Stock Ex­change said it will in­ten­sify se­cu­ri­ties firms’ train­ing and con­tinue to sup­port them sell­ing lo­cal gov­ern­ment bonds to in­di­vid­ual in­vestors.

Zhao Quan­hou, di­rec­tor of the fi­nan­cial re­search cen­ter at the Chi­nese Academy of Fis­cal Sciences un­der the min­istry, said car­ry­ing out the pi­lot could de­crease fi­nanc­ing costs of lo­cal gov­ern­ments.

“Pre­vi­ously, banks were the main par­tic­i­pants in China for lo­cal gov­ern­ment bond is­su­ing,” said Zhao. “With in­di­vid­ual in­vestors in­volved, fi­nanc­ing costs can be lower, as there are more pur­chasers and the bond pric­ing is more trans­par­ent.”

Zhao added that in many de­vel­oped coun­tries, in­di­vidu- als par­tic­i­pate in pur­chas­ing lo­cal gov­ern­ment bonds through mu­tual funds, which is a good prac­tice for China to learn.

Deng Haiqing, chief econ­o­mist at JZ Se­cu­ri­ties, said the par­tic­i­pa­tion by in­di­vid­u­als was good for im­prov­ing the liq­uid­ity of lo­cal gov­ern­ment bonds, but it was also im­por­tant to pre­vent risks.

“Sim­i­lar to stock mar­kets, more re­tail in­vestors will bring more mar­ket fluc­tu­a­tions,” Deng said.

“Al­though the pi­lot will bring ben­e­fits for lo­cal gov­ern­ments to fi­nance funds in the short term, mar­ket reg­u­la­tors should pay at­ten­tion to (keep­ing the) mar­ket steady and in­vestor ed­u­ca­tion is im­por­tant.”

China’s newly re­vised Bud­get Law clearly stip­u­lates that lo­cal gov­ern­ment bonds can be pub­licly is­sued through a na­tional quotabased mech­a­nism, a main fi­nanc­ing chan­nel for lo­cal gov­ern­ments.

Data from the Min­istry of Fi­nance showed that the quota of lo­cal gov­ern­ment debt in 2017 was around 18.8 trillion yuan, up from 17.2 trillion yuan in 2016 and 16 trillion yuan in 2015. Last year, China’s lo­cal gov­ern­ment debt balance was 15.3 trillion yuan, a 4.3 per­cent de­crease year-on-year.

lo­cal gov­ern­ment bonds to be is­sued by Sichuan prov­ince

Chai Hua con­trib­uted to this story.

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