Spray and Pray: Work Round the Clock to Issue Local Govt Debt, 1 Trillion in 4 Months

Local governments only repaid 17 percent of debt in the first half of the year, rolling the rest over. In the second-half of the year, maturing debt will more than quadruple. Governments are also behind on issues

State Council: China accelerates special-purpose bond issuance to stabilize investment

China’s Ministry of Finance (MOF) unveiled a guideline on Aug 14 to accelerate the issuance of special-purpose bonds by local governments to stabilize investment, expand domestic demand, and strengthen areas of weakness.

The ministry has urged local authorities to speed up preparations for the issuance in August and September so as to complete at least 80 percent of the annual quota by the end of next month, while the majority of the remaining 20 percent is expected to be accomplished in October.

iFeng: 财政部发文催“赶工”：4个月里要发近万亿地方专项债

According to the data given by Peng Zhiyuan researcher Wu Zhiwu, the repayment of local government bonds in the first half of 2018 was 160.059 billion yuan, and "borrow new to pay old" scale was 134.516 billion yuan, and the actual repayment rate was 16.62%. In the second half of the year, the local government bond repayment amount is 678.302 billion yuan. If calculated according to the actual repayment rate in the first half of the year, the borrow new to pay old scale will be 565.315 billion yuan in the second half of the year.

In addition to publicly available explicit debts, local governments still have a lot of hidden debts. A research report by a third-party agency said that the debt ratio of many Chinese local governments may have exceeded the international debt risk warning line.

The problem is the economy is slowing and local governments are expected to grow:

But the dilemma. The local debt narrative, B side, is that in the "troika", the rapid pull of "export" and "consumption" is hard to count now. So only investment.

Of course, according to the Ministry of Finance, the role of issuing local debt (specialized bonds) is to "stable investment, expand domestic demand, and make up shortcomings."

Governments are "rushing" debt to market:

In July, the scale of local bond issuance has reached a new high of monthly circulation this year, reaching 756.954 billion yuan. (But there is also a sentence that says it will be a little higher last year.)

Take a look at the special debts. Last Thursday, "Finding Finance and Economics" in the article about the new debts of local government special debts, predicted that the rhythm of special debts will be rushed in the next few months. Sure enough.

- The amount of local government special bonds arranged by the State Council this year was 1.35 trillion yuan (an increase of 550 billion yuan over the previous year), but only 367.3 billion yuan was completed in the first half of the year.

- According to industry sources, in July, 19 provinces and municipalities re-issued nearly 200 billion special bonds, that is, more than 500 billion yuan in the first seven months.

- The Ministry of Finance's "Opinions" require that the cumulative completion of new issuance by the end of September should not be less than 80%. In other words, in August and September, all localities have to “catch up” and reissue special bonds of about 500 billion yuan.

- The Ministry of Finance's "Opinions" require that the remaining issuance quota should be mainly issued in October. In other words, there will be another 270 billion in October.

This means that nearly 1 trillion yuan of local government special bonds will be concentrated in the four months from July to October.