Local govt bonds boost infrastructure

Gains in social capital, investment to bolster key projects and development

The rise in special local government bond issuances in the first four months of this year will help energize China's social capital, expand effective investment and funnel more funds into key areas like infrastructure that better serve the country's drive for high-quality development, experts said on Friday.

Data from Wind, a financial information service provider in China, showed that from January to April this year, local governments issued bonds worth 1.95 trillion yuan ($280 billion), including special local government bonds worth 1.62 trillion yuan, accounting for nearly 43 percent of this year's total special bond quota, notably faster than the January-April period of last year.

Securities Daily, a Chinese-language business newspaper, reported that by Thursday, the amount of newly issued local government bonds had exceeded 3 trillion yuan, including special local government bonds worth 1.62 trillion yuan.

Experts said that infrastructure construction is a major area where most funds raised via these special bonds were deployed.

"Among the special local government bonds issued in the first four months this year, some 980.1 billion yuan was invested in infrastructure, taking up about 60.5 percent of the total amount," said Wen Bin, chief economist at China Minsheng Bank.

Information in the public domain on usage of bond issue proceeds showed that 105.2 billion yuan, or about 7.8 percent of the total bond quota issued, has been used as project capital, up from 6.6 percent last year.

Wen said allocations of proceeds of local government bond issuances this year have notably accelerated compared with the same period of last year.

"Such an acceleration helps local governments to plan key projects in advance, and front-load investment in these projects, injecting momentum into economic performance and ensuring growth quality," he said.

"With the Ministry of Finance slated to issue the remaining quota of the special local government bonds for this year, we expect such a process to be further accelerated and be completed by the third quarter," said Feng Lin, macroeconomic analyst with Golden Credit Rating International. "We expect a newly issued special bond for 1 trillion yuan in the second quarter and another bond for about 1.2 trillion yuan in the third quarter."

In March, the Government Work Report proposed 3.8 trillion yuan of local government special-purpose bonds for this year. It underlined the implementation of major projects set out in the 14th Five-Year Plan (2021-25) will be sped up, and urban renewal projects should also be launched.

Feng said that funding from bonds will likely ensure that growth of infrastructure this year is higher at around 6 percent.

In a news briefing in mid-April, Li Dawei, deputy director of the budget department at the Ministry of Finance, said the ministry will strengthen the management of special local government bonds to ensure that funds from these bonds will keep economic growth stable and of high quality.

Special bonds' funding allocation must be project-based and center around key projects in critical areas of growth. The quality of projects in reserve will be improved, Li said.