China 2020: Leverage Up With More Special Debt and RRR Cuts

Key sentence:

The downward pressure on the economy has increased and it is necessary to respond in advance.

As the prior post showed, local governments and provinces have already finalized 2020 bond issuance plans that are typically finished in October and November. There is a need to pull 2020 GDP in 2019 to hit targets.

Macro takeaway: keep moving those long-term USDCNY targets higher.

Shanghai Securities News: 国常会传出重磅信号：及时运用普遍降准和定向降准等政策工具、提前下达明年专项债部分新增额度

□ Put the work of “six stables” in a more prominent position, focus on doing things well, use counter-cyclical adjustment policy tools, and sort out the key issues in key areas based on the implementation of the policies already in place.

□ Maintain overall price stability and implement measures to stabilize the price of pork.

□ The special government bonds of the local government within this year must be guaranteed to be issued before the end of September. All funds will be allocated to the project before the end of October, and the physical workload will be formed as soon as possible.

□ Adhere to the implementation of a prudent monetary policy and timely pre-adjust and fine-tune, accelerate the implementation of measures to reduce the actual interest rate level, and timely use policy tools such as general RRR cuts and targeted RRR cuts.

□ According to the needs of the construction of major local projects, the new quota for the special debts for next year will be released in advance according to the regulations to ensure that the use will be effective early next year.

□ Expand the scope of use of local special debts, focusing on infrastructure, ecological and environmental protection projects such as transportation, energy, agriculture, forestry and water conservancy, sewage and garbage disposal, cold chain logistics, water and electricity heat, vocational education and child care services such as child care, medical care and old-age care. It should not be used for land reserves, real estate, debt swaps, and industrial projects that can be fully commercialized.

Let credit grow!

The National Standing Committee proposed to implement a prudent monetary policy, timely pre-adjust and fine-tune, implement measures to reduce the actual interest rate level, and timely use tools such as general RRR cuts and targeted RRR cuts to guide financial institutions to use more funds for inclusive finance. Increase support for the real economy.

In an interview with the Shanghai Securities Journal, Zhang Jun said that this was after the National General Meeting on August 16, and once again proposed lowering the actual interest rate level and clearly issuing a RRR signal.

In order to speed up the issuance of local government special bonds, the meeting made it clear that according to the project construction needs, some special debts will be issued in advance according to regulations to ensure that the use will be effective early next year.

Earlier reports said that the regulatory authorities have issued documents requiring local authorities to report the funding needs of major special debt projects in 2020, and this year will release some local government debt limits in 2020.

Look at the shift in timing over the past couple of years:

Before 2018, since the National People's Congress was held in March, after the approval of the local government debt quota, the local government will generally wait until May for the issuance of funds, which will easily lead to a funding gap at the beginning of the year.

They need to issue debt earlier and earlier because credit growth is slowing and its tipping the economy into recession.

In order to solve this problem, the National People's Congress authorized to release some of the next year's quota in advance in the fourth quarter, so as to issue bonds at the beginning of the year to match the project funding needs.

In addition, the National Committee has further determined that it is necessary to expand the scope of use of local special bonds, focusing on infrastructure, ecological and environmental protection projects such as transportation, energy, agriculture, forestry and water conservancy, sewage and garbage disposal, cold chain logistics, water and electricity, vocational education and child care. People's livelihood services such as medical care and old-age care. It should not be used for land reserves, real estate, debt swaps, and industrial projects that can be fully commercialized.

From the perspective of the expansion of special debts mainly for infrastructure and people's livelihood improvement, it further demonstrates the state's supportive attitude towards infrastructure investment as a counter-cyclical adjustment tool. It is expected that the stable infrastructure will become the key to stable investment in the future.