China’s Ministry of Finance has allocated 1.46 trillion yuan (about 229 billion U.S. dollars) from its 2022 quota for local government special bonds, as the country seeks to boost local infrastructure investment and steady economic growth for the upcoming year.
Characterizing the country’s proactive fiscal policy, the advance allocation is aimed to mitigate economic pressure in the first quarter of next year, said Vice Minister Xu Hongcai at a recent press conference.
Set to be issued and used in the first quarter accordingly, these special bonds are expected to “provide strong support for stabilizing the macroeconomic climate,” Xu said.
According to a guideline jointly released by the ministry and the National Development and Reform Commission (NDRC), the bonds will fund projects providing significant economic and social benefits, including those in transport infrastructure, energy, ecological conservation and government-subsidized housing.
The issuance will also prioritize projects that have been incorporated into the country’s 14th Five-Year Plan and other major long-term strategies for regional development.
Key policy maneuver
At the tone-setting Central Economic Work Conference earlier this month, China‘s top policymakers called for intensified cross-cycle adjustment of macroeconomic policy, and stressed that infrastructure investment should be “moderately advanced.”
As vital sources of funds for local infrastructure construction projects, special bonds are what analysts believe will play a key part in next year’s economic landscape.
Issuing local government special bonds is a major measure under the current proactive fiscal policy, and a key tool for cross-cycle economic regulation, said He Daixin, a researcher with the Chinese Academy of Social Sciences.
“The sound management of special bonds can thereby help expand effective investment and stabilize economic growth,” He added.
The role of special bonds as an economic stabilizer has become more prominent this year as COVID-19 continues to weigh on the nation’s economic recovery. In early 2021, the central government required its local counterparts to reasonably control the pace of issuance to “avoid bond funds sitting idle,” said Xu.
In contrast, local governments have begun to speed up the issuance in the second half of this year to help the economy navigate the changing environment, Xu noted, adding that the monthly issuance has exceeded 500 billion yuan since August.
As of Dec. 15, the whole-year issuance had been nearly completed, with some 3.42 trillion yuan of special bonds having been issued. The amount accounted for 97 percent of the 2021 quota, which stands at 3.65 trillion yuan.
“This year’s special bonds were largely issued in the second half, so quite a large proportion of them are going to be used in the first quarter of next year,” said Meng Wei, an NDRC official.
These bonds will work with those to be issued from the 2022 quota, Meng said, envisioning that they will collectively bolster effective investment next year.
Ready to go
The NDRC has recently finished screening local governments’ special bond applications for 2022 to ensure targeted issuance to qualified infrastructure and public service projects, Meng said, adding it will also monitor the progress of related projects to make sure they run smoothly.
For future fiscal work, Xu warned related departments to keep a wary eye on the debt risks of local governments, although they are generally under control.
By the end of 2020, local governments in China had 25.66 trillion yuan in outstanding debt. Their debt ratio stood at 93.6 percent, below the international standard of 100 percent to 120 percent.
In recent years, the hidden debt risks of local governments have been steadily eased, Xu said, adding that the risks are on the whole manageable.
“By forestalling and defusing hidden debt risks, our ultimate goal is to completely eliminate all hidden debts nationwide,” Xu said, stressing that the country would also establish an institutional framework on long-term supervision to contain the formation of hidden debts.