China's local govt to borrow more in 2018

LONDON: Economists expect local governments in China to increase bond issuance moderately next year to support major investment projects, while the top authority remained determined to further rein in illegal fundraising and prevent risks. Local governments have issued a total of 4.36 trillion yuan ($665 billion) in bonds this year, a drop of nearly 28 percent from last year's 6.05 trillion yuan, according to data from China Central Depository and Clearing Co Ltd, the national bond information platform. This occurred as tightening financial regulations have weakened the country's bond market and pushed issuance costs up.

Experts who are close to the Ministry of Finance told China Daily that in 2018, local governments are expected to issue more bonds to ensure investment, especially in high-end manufacturing and innovation sectors, a measure supporting "high-quality" economic development stressed in the recent Central Economic Work Conference. They also said that the target fiscal deficit ratio is expected to be lower than the 3 percent this year due to the expected stabilized and sound economic growth in coming months. The new target will be set by the National People's Congress in March. A report from Haitong Securities forecast that local governments may issue 4.65 trillion yuan in bonds next year. China will maintain proactive fiscal policies in 2018 to adjust and optimize the fiscal expenditure structure by ensuring investments in major areas and projects while squeezing some general expenses, the annual top-level economic conference emphasized.

It also reiterated the need to further enhance controls on local governments' debt, as it is identified as one of the most risky areas threatening economic stabilization. The country has used a "debtto-bond" swap program since 2014 as an innovative method of shifting short-term and high-default-risk debt into long-term and relatively stable bonds. This eases local governments' debt burden and strengthens management.

A Finance Ministry official who declined to be named told China Daily, "Another 1.9 trillion yuan debt as estimated will be swapped into bonds in 2018." He also said that by the end of October, the country's incremental local government debt was calculated as 16.8 trillion yuan, less than the annual 18.8 trillion yuan ceiling.