In the first quarter, the five provinces issued more than 100 billion yuan of new bonds, and the issuance of special bonds accelerated to stabilize the economy

Active fiscal policy has made efforts to stabilize the economy, and the issuance of local government bonds is accelerating.

On April 4, the Ministry of Finance disclosed the issuance of local government bonds and the balance of debt in March. In the first quarter, the country issued about 26.3 trillion yuan of new local government bonds, of which new special bonds were the mainstay. From the perspective of the scale of new bond issuance in 1 provinces, Shandong, Guangdong, Sichuan, Hebei and Fujian all exceeded 67 billion yuan, and Jiangsu and Zhejiang approached 31 billion yuan.

With the Ministry of Finance recently lowering the remaining local government debt limit to provinces and cities, this also means that the 4.52 trillion yuan of new bonds this year has been fully allocated, and the remaining about 4.2 trillion yuan of new bonds will be issued from April to provide funds for the construction of major projects.

A number of local debt experts told First Finance and Economics that the good start of the economy in the first quarter is inseparable from the help of local government bonds, especially special bonds, which can be seen from the rapid growth of infrastructure investment. Since the economic recovery is still not solid enough, active fiscal policy is still needed in the future, which requires accelerating the issuance and use of special bonds, improving the efficiency of capital use, and driving the growth of social investment, so as to expand effective investment and stabilize the macroeconomy.

Major economic provinces have accelerated bond issuance

Affected by multiple factors such as economic downward pressure and sluggish land market, local fiscal revenue still grew weakly in the first quarter. Among them, the income from the transfer of local government-owned state-owned land use rights fell by 27% year-on-year again in the first quarter of this year on the basis of a sharp decline last year.

Local fiscal policy is more dependent on borrowing, which can be observed from the first quarter of local government bond issuance data.

According to data from the Ministry of Finance, local governments across the country issued 16694,6.3126 billion yuan of new bonds in the first quarter, an increase of about 15% year-on-year. Among them, general bonds were 13568.7 billion yuan, a year-on-year increase of about <>%, and special bonds were <>,<>.<> billion yuan, a year-on-year decrease of <>%.

Wen Laicheng, a professor at the Central University of Finance and Economics, analyzed that from the first quarter bond issuance data, it coincides with the demand for debt funds for economic growth, and the issuance of new bonds by local governments, especially special bonds, is relatively fast, which has played an important role in stimulating investment and stabilizing the economy.

Major economic provinces are speeding up bond issuance. According to data from the Ministry of Finance, in the first quarter of the 31 provinces, Shandong (1487.1409 billion yuan), Guangdong (1251.1015 billion yuan), Sichuan (1015.949 billion yuan), Hebei (944.811 billion yuan), Fujian (<>.<> billion yuan) exceeded <> billion yuan, Jiangsu (<>.<> billion yuan), Zhejiang (<>.<> billion yuan) and Henan (<>.<> billion yuan) also issued larger scale. The bulk of this is new special bonds.

Luo Zhiheng, chief economist of Guangdong Development Securities, said that in the first quarter, the scale of bond issuance in economically developed provinces was larger and the issuance progress was faster. Because of the strong fiscal strength of these provinces, bonds are more easily recognized by investors, and the local economy is large, and there is a greater demand for new bonds.

In order to prevent and control the risk of local government debt, China has adopted a limit management of local debt, setting a "ceiling" for local borrowing. According to the relevant documents of the Ministry of Finance, when allocating the new bond issuance quota, it will take into account factors such as local financial strength, debt risk, financing needs, project maturity, and national macro-control needs. Generally speaking, the stronger the local government's financial strength, the lower the debt risk, the more expenditure on major central projects, and the greater the financing demand, the larger the amount of bond issuance, and vice versa. From the perspective of the scale of local government bond issuance last year, Guangdong, Shandong, Henan, Sichuan, Jiangsu, Zhejiang, Hubei, Beijing and other provinces ranked first.

At present, the new bonds are mainly special bonds, for example, of the 4.52 trillion yuan of new bonds this year, special bonds are 3.8 trillion yuan. Special bonds refer to government bonds issued for public welfare projects with a certain income, and the government fund income or special income corresponding to the public welfare project is used as the source of funds for repayment of principal and interest. At present, special bonds are an important means for the government to drive the expansion of effective investment and stabilize the macroeconomy.

Although the scale of special bond issuance in the first quarter was slightly lower than the same period last year, Luo Zhiheng said that from the perspective of the progress of bond issuance over the years, the speed of special bond issuance in the first quarter of this year is still relatively fast, which actually reflects the active fiscal policy to increase efficiency. The steady economic growth in the first quarter was related to the accelerated issuance and use of special bonds.

According to the National Bureau of Statistics, GDP in the first quarter increased by 4.5% year-on-year. Among them, infrastructure investment increased by 8.8%.

Li Dawei, deputy director of the Budget Department of the Ministry of Finance, recently said at a press conference on fiscal revenue and expenditure in the first quarter that in the first quarter, various localities issued 13228,<>.<> billion yuan of new special bonds for project construction, mainly supporting the construction of key areas and major projects such as municipal and industrial park infrastructure, transportation infrastructure, social undertakings and affordable housing, which played an important role in driving the expansion of effective investment and maintaining the smooth operation of the economy.

For example, according to data from the Sichuan Provincial Department of Finance, the local government has issued 1024.2022 billion yuan of local government special bonds in three batches in the first quarter, an increase of 110 billion yuan over the same period in 12, a year-on-year increase of 215%, and the issuance progress and issuance scale are among the highest in the country, and are concentrated in the construction of the Sichuan region of the Chengdu-Chongqing Shuangcheng Economic Circle. In the first quarter, Sichuan Province has used more than <>.<> billion yuan of bond funds, and the project construction has progressed in an orderly manner. This provides a solid financial guarantee for Sichuan Province's economy to achieve a "good start" in the first quarter.

The issuance of special bonds has been accelerated and supervision has been stricter

Luo Zhiheng expects that the issuance of special bonds will be further accelerated, and the annual issuance task of 3.8 trillion yuan will be basically completed within the third quarter. The issuance of special bonds as soon as possible can form a physical workload faster, drive social investment, and drive related industrial chains, stabilize aggregate demand, promote economic stability, and better boost market confidence.

According to public bond data, as of April 4, the issuance scale of new special bonds was about 25.1 trillion yuan, accounting for about 55% of the annual limit of 3.8 trillion yuan.

Wen Laicheng also believes that since the beginning of this year, the income from local land sales has continued to decline sharply, which has a certain impact on local finances and the economy. Therefore, it is necessary to issue special bonds as soon as possible to stimulate investment growth and promote the smooth operation of the economy. It is expected that the issuance of new special bonds this year will be completed in the first three quarters.

Recently, a number of local financial sources confirmed to reporters that the Ministry of Finance has issued the remaining new special debt quota for projects to various localities, which is conducive to the issuance of bonds as soon as possible.

At present, various localities have also disclosed their bond issuance plans for the second quarter. For example, the Department of Finance of Guangdong Province issued an announcement that it will issue 1566.1216 billion yuan of bonds in the second quarter, of which 1581.1256 billion yuan of new special bonds will be added. Jiangsu plans to issue about 867.5 billion yuan in the second quarter, Shandong plans to issue 555.<> billion yuan in the second quarter, Sichuan plans to issue <>.<> billion yuan in the second quarter, and Hebei plans to issue about <>.<> billion yuan in May.

Li Dawei said at the above press conference that one of the main measures to promote the economic recovery momentum in the next step is to accelerate the issuance and use of local government special bonds. Guide local governments to strengthen the preliminary preparation of special bond projects, improve the quality of project reserves, accelerate the progress of special bond issuance, strengthen the management of the use of special bond funds, appropriately increase the concentration of fund use, give priority to supporting projects with high maturity and projects under construction, promote the formation of physical workload as soon as possible, and give play to the positive role of special bonds in expanding effective investment.

Li Xuhong, a professor at the National Accounting Institute in Beijing, said that compared with last year, the investment direction of special bonds in the first quarter of this year and the fields that can be used as capital have been expanded, which will be conducive to ensuring the project reserve of special bonds, and can be combined with "accelerating the progress of special bond issuance" to avoid the phenomenon of idle funds, and achieve the effect of early issuance, rapid use and stable investment. As one of the important points of "strengthening and improving efficiency" of active fiscal policy, under the joint effect of "accelerating the progress of special bond issuance" and "appropriately expanding the scope of support", special bonds will further play their positive role in strengthening the foundation, making up for shortcomings, benefiting people's livelihood, and expanding investment, so as to provide support for steady progress in economic development.

Previously, when many provincial and municipal audit departments talked about the issue of special debts, one of the more common problems was that the project declaration was not standardized and the preparation was insufficient, resulting in some special debt funds being idle.

A number of local financial sources said that this year, the relevant departments have tightened the supervision of special bonds. For example, the project application review is more stringent, and the projects declared in some places are returned because they are unqualified, and the pass rate is low.

The Ministry of Finance has publicly stated that it will regularly organize the local supervision bureaus of the Ministry of Finance to carry out verification of the use and management of special bonds.

According to the official websites of a number of local governments, this year the Ministry of Finance issued the Notice on Carrying out the Verification of the Management of the Use of Local Government Special Bond Funds in 2022, and the relevant regulatory bureaus of the Ministry of Finance verified the management of the use of special bond funds in some places in 2022 and the idle situation of special bond funds in previous years. The verification includes whether the use of newly added special bond funds is compliant, whether the special bond funds are used for regular expenses such as salaries and pensions, and whether the funds are misappropriated for other projects in violation of regulations.

According to data from the Ministry of Finance, as of the end of March 2023, the balance of local government debt nationwide was about 3.36 trillion yuan, controlled within the limit approved by the National People's Congress. Among them, the balance of special debt is about 8 trillion yuan.

In recent years, the scale of special bond issuance has risen rapidly, driving the rapid growth of the balance. As land transfer income, which is one of the important sources of debt repayment, continues to decline, the risk of special debt has attracted attention. However, according to the Ministry of Finance, as of the end of 2021, the principal repayment guarantee multiple of special debts is 5.11, and the debt repayment guarantee ability is better.

Experts believe that strengthening the supervision of special bonds by the Ministry of Finance can improve the efficiency of capital use and reduce the risk of debt repayment.

Li Xuhong said that properly resolving the local debt problem can start by optimizing the debt term structure and reducing the interest burden. Optimizing the maturity structure of debt can also improve debt sustainability and reduce the risk of government debt default; Reducing the interest burden can save local governments fiscal expenditure, so that they can use more funds to support local economic development and improve people's livelihood. So as to provide more fiscal space for local governments and promote high-quality economic development.

In recent years, the average issuance period of local government bonds has lengthened and interest rates have decreased. According to data from the Ministry of Finance, in the first quarter of this year, the average issuance period of local government bonds was 15.1 years, compared with 13.2 years for the whole of last year; the average issuance interest rate was 3.09%, similar to last year.