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Beijing urges faster bond issuance for infrastructure push

China’s Ministry of Finance released a guideline on Tuesday urging local governments to speed up issuance of special-purposed bonds for infrastructure projects as part of its package to invigorate the economy crimped by intensifying trade tensions and slowing domestic demand.

The ministry has urged local authorities to speed up the issuance so as to accomplish at least 80 per cent of the annual quota by the end of next month, while the remaining 20 percent is expected to be accomplished in October, according to the guideline.

The minister also cancelled requirements for seasonal balance of bond issuance, lifted the duration limit on the bond portfolio and streamlined disclosure procedures to give local governments greater flexibility, according to the guideline.

Previously, Beijing requires local government to control the pace of bond issuance to avoid bringing too strong pressure to the bond market, limiting local governments’ bond issuance each season to no more than 30 per cent of its yearly quota.

In addition, provincial-level governments and authorized municipal governments are allowed to issue special-purposed bonds to raise funds for the development of public-interest projects.

The State Council earlier this year set 2018 quota for special-purposed bond at 1.35 trillion yuan, which is 550 billion yuan higher than the quota for 2017, to meet reasonable financing needs from local governments.  The data from the Ministry of Finance shows that local governments issued only 367.3 billion yuan bonds of the type in the first half of this year amid the country’s deleveraging campaign.

The slow issuance of local government bonds comes with dwindling infrastructure investment so far this year which has been a major drag to China’s economy which grew 6.7 per cent in the second quarter. Official data shows that China’s infrastructure investment rose only 7.3 per cent year-on-year in the first half of the year, compared to a 21.1 per cent growth one year earlier, damped by the government’s deleveraging campaign.

According to the data released by the National Bureau of Statistics on Tuesday, China’s fixed-asset investment rose 5.5 per cent year on year in the first seven months of the year, the slowest growth on record, compared to 6 percent for January-June.

However, analysts have seen signs of acceleration of the issuance of the bonds in July. “Nineteen provinces including Hebei, Heilongjiang and Shanghai issued nearly 200 billion yuan special-purposed bonds in July, 61.2 billion more than the previous month,” said Zhang Zifan, analyst at Golden Credit Rating International Co., Ltd under the China Orient Asset Management Holdings Ltd.

Meanwhile, the country’s top economic planner the National Development and Reform Commission has accelerated approving new infrastructure projects. The NDRC approved four urban rail transit projects in Suzhou with expected investment of 95 billion yuan ad eight urban rail transit projects in Changchun with expected investment of 78.7 billion yuan, according to documents on its website.

In addition to faster issuance of special-purposed bonds, Goldman Sachs believes China will support infrastructure construction accelerating bond issuance by Local Government Financing Vehicles (LGFVs) and softening stance on shadow banking to make shadow banking assets decline at a slower pace.

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