Guide­lines is­sued for lo­cal govts to issue special bonds

China Daily (Hong Kong) - - BUSINESS - By WANG YANFEI wangyan­fei@chi­nadaily.com.cn

The Min­istry of Fi­nance on Wed­nes­day is­sued guide­lines al­low­ing lo­cal gov­ern­ments to issue special bonds.

The to­tal amount of bond value can­not ex­ceed the ceil­ing im­posed by the State Coun­cil set at the be­gin­ning of the year, ac­cord­ing to the guide­line is­sued by the min­istry.

Apart from bonds of other types, the fi­nanc­ing al­lo­ca­tion for special bonds is es­ti­mated to be around 930 bil­lion yuan ($138.3 bil­lion), in­clud­ing the value of new bonds to be is­sued this year and the bal­ance re­main­ing at the end of last year.

The guide­line makes it clear that gov­ern­ments at the pro­vin­cial level will be re­spon­si­ble for reg­u­lat­ing the is­suance of special bonds is­sued by mu­nic­i­pal gov­ern­ments un­der their ju­ris­dic­tion.

Pro­vin­cial of­fi­cials need to set their own lim­its to avoid break­ing the na­tion’s debt ceil­ing.

The cen­tral gov­ern­ment en­cour­ages lo­cal gov­ern­ments to launch pi­lot pro­grams is­su­ing special bonds of dif­fer­ent types, with pri­or­ity given to land rev­enue bonds and toll road bonds.

Two types of special bonds in­tro­duced in June aim to give lo­cal gov­ern­ments greater bor­row­ing ca­pac­ity to fi­nance lo­cal in­fras­truc­tural projects, at a time when lo­cal gov­ern­ments have a strong ap­petite for bor­row­ing in the com­ing months, ac­cord­ing to Liang Hong, chief econ­o­mist with China In­ter­na­tional Cap­i­tal Cor­po­ra­tion.

The guide­line for bond is­suance came af­ter the cen­tral gov­ern­ment de­cided to shut the door on off-bal­ance sheet fi­nanc­ing chan­nels ear­lier this year.

En­ter­prises and banks have been ac­tive in the past sev­eral years is­su­ing credit to lo­cal gov­ern­ments to in­vest in in­fras­truc­ture projects.

Guar­an­tees from lo­cal gov­ern­ments, of­ten in the form of let­ters or other doc­u­ments, helped en­sure re­pay­ments.

An­a­lysts said off-bal­ance sheet debt raised through such fi­nanc­ing ve­hi­cles, which do not dis­close the size, posed risks to the na­tion’s fi­nanc­ing sys­tem.

While the gov­ern­ments’ debt bur­den re­mains un­der con­trol, hid­den risks in­volved in off-bal­ance sheet bor­row­ing de­served at­ten­tion, ac­cord­ing to Zhang Lianqi, a fi­nan­cial ex­pert whom the min­istry con­sults.

The ra­tio of to­tal gov­ern­ment debt to the gross do­mes­tic prod­uct was around 42 per­cent by the end of last year, ac­cord­ing to the min­istry.

With a de­tailed guide­line, lo­cal gov­ern­ments would un­der­stand the rules, in­creas­ing fi­nanc­ing to sup­port lo­cal projects while not mak­ing the over­all debt prob­lem worse, ac­cord­ing to Sun Bin­bin, chief an­a­lyst at Tian­feng Se­cu­ri­ties.

Mean­while Zhang Lianqi said that with more type of bonds to be is­sued in the fu­ture, a more di­ver­si­fied bond mar­ket would help ad­dress the debt prob­lems, be­cause the dis­clo­sure re­quire­ments would force lo­cal gov­ern­ments to bring­ing off-bal­ance sheet debt back onto the books.

the fi­nanc­ing al­lo­ca­tion for special bonds the ra­tio of to­tal gov­ern­ment debt to the gross do­mes­tic prod­uct by the end of last year

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