Fiscal policy bonds with 'special' hue

Local govts receive $229b as Finance Ministry seeks to cut slowdown risk

The Ministry of Finance has funneled 1.46 trillion yuan ($229 billion) from the 2022 quota of special bonds to local governments already, a senior official said on Thursday.

The measure indicates implementation of the government's proactive fiscal policy aimed at preventing the risk of economic slowdown in the first quarter of next year, he said.

Part of the 2022 annual quota, the amount was allocated earlier than the annual fiscal budget, considering the possible rise in pressure to stabilize growth in the first quarter of next year, said Vice-Minister of Finance Xu Hongcai.

Also, as of Wednesday, 3.42 trillion yuan of local government special bonds had been issued, accounting for 97 percent of the 2021 quota. "The special bond issuance of the whole year has almost been completed," Xu said at a news conference.

Earlier this year, the National People's Congress, the country's top legislature, approved 3.65 trillion yuan toward the 2021 quota of special bonds.

Funds from the special bonds have helped finance key projects. About 50 percent of the funds are concentrated in fields like infrastructure for transportation, municipal facilities and industrial parks. And nearly 30 percent have been used in social programs like health care, education, and housing, Xu said.

"The special bonds have played an important role in driving the expansion of effective investment and maintaining the stable operation of the economy."

In the second half of this year, China has been fine-tuning its macroeconomic policy to hedge against headwinds. The Ministry of Finance urged local governments to accelerate both special bond issuances and fund use. From August, the issuance of special bonds exceeded 500 billion yuan per month, official data showed.

Xu also pledged to guide local governments to assign the quota to specific projects in advance "as soon as possible", and start preparing the 2022 issuance plan before the end of this year. "We will ensure that a considerable number of special bonds will be issued and used in the first quarter of next year."

After the NPC approval, the ministry will issue the rest of the quota. It will ask local governments to speed up the issuance process and manage the workload in a timely manner, the official said.

Song Qichao, head of the budget department of the ministry, said in 2022, the special bonds should focus on improving the vulnerable economic and social development sectors and supporting major projects, which can effectively drive economic growth.

There will be nine major areas for special bond investment in 2022, said Song. Six of the nine identified areas are transportation infrastructure, energy, agriculture, forest and water conservation, ecological and environmental protection, and logistics infrastructure.

Meanwhile, the Ministry of Finance has taken measures to curb the growth of local government implicit debt. Pilot programs that aim to clean up the implicit debt amount to zero have started in Shanghai and Guangdong province.

"In recent years, the risk of implicit debt has been steadily mitigated and the risk is generally controllable," said Xu. "The ultimate goal of preventing and resolving the risk of implicit debt is to completely eliminate implicit debt nationwide and establish a long-term regulatory framework."

So far, the ministry has no plan to swap local government debt with central government debt, as "it's complicated and needs cautious research", the vice-minister said.